Bangalore/New Delhi: Sanctions imposed by the West on Iran for its suspected nuclear weapons programme have affected the offtake of crude by refiner Mangalore Refinery and Petrochemicals Ltd (MRPL) that has a 5 million tonnes (mt) contract with Iran, which has the world’s second largest oil and natural gas reserves.

MRPL, a subsidiary of government-owned Oil and Natural Gas Corp. Ltd (ONGC) and India’s largest importer of Iranian crude, could only bring in one consignment of 90,000 tonnes of crude oil for its refining operations in July against a monthly average of four cargoes of 90,000 tonnes each.

A file photo of MangaloreRefinery & Petrochemicals Ltd., facility in Mangalore. Bloomberg .

The US and the European Union (EU) have been seeking to force Iran to abandon its nuclear programme, which they allege is aimed at making atomic weapons. Iran has defended itself, saying the programme is for peaceful purposes.

“We are now increasing our spot cargo purchases to make up for the shortfall in Iranian imports," Upadhya added.

MRPL had contracted for 7.3 mt of Iranian crude oil last fiscal of which it imported 6.2 mt. In the current fiscal till date, it has imported 1.2 mt of the 5 mt contracted for.

India is the world’s fourth largest oil importer and a major customer for Iran’s 1.7 million barrels per day of oil exports. India buys 14-15 million tonnes (mt) of crude oil a year from Iran

“There is no denying the fact there is a problem in getting tankers....We are also looking at CIF (cost, insurance and freight basis) arrangement," said Sudhir Vasudeva, chairman and managing director, ONGC.

India has allowed state-run oil refiners to buy Iranian crude on the CIF basis that puts the onus of shipping the crude on the Iranian supplier. India, which used to import around 12-13% of its crude oil needs from Iran, has cut the imports to around 8-9%.

The US extended exemptions from its tough, new sanctions on Iran’s oil trade to seven more economies including India, South Korea and Turkey on 11 July in lieu of curtailing oil imports from Iran.

Earlier this month, India’s insurance regulator allowed state-run United India Insurance Co. Ltd to provide third-party liability cover of $50 million (around 275 crore) per voyage for ships transporting Iranian crude oil as part of a two-pronged emergency plan to avoid supply disruptions in the face of the sanctions.

An oil embargo by EU took effect on 1 July and bans firms from insuring Iranian shipments. However, none of the local tanker owners has so far started shipping crude from Iran taking the cover provided by United India Insurance.

“The cover limit of $50 million might be adequate for ships up to a certain size, but this limit is insufficient for larger tankers that require up to $140 million of cover under the Civil Liability Convention," said David Bolomini, an executive at the London-based International Group of Protection and Indemnity Clubs (IG Clubs).

“In the event of a maritime accident involving pollution, collision and possibly death and injury to seafarers and others, the total exposure of claims could exceed the cover limit of $50 million resulting in hardship for innocent victims of damage," Bolomini said.

IG Clubs is a group of 13 members that among them insure around 95% of the world’s tankers, placing a $1 billion limit on any individual claim that involves pollution damage and wreck removal and has stopped providing this cover to ships that haul Iranian crude.