India, the world’s third-largest oil importer, is in discussions with oil producers in West Asia as well as in other geographies to procure a total of about 15 million tonnes of extra crude over the year to urgently bridge a supply gap that will be caused by the exit of Iran from its energy basket.
US secretary of state Mike Pompeo on Monday announced that the Donald Trump administration would no longer grant exemptions to some countries to import Iran oil with the conditional waiver set to expire on 2 May.
India’s attempt to boost crude supplies from the Gulf nations also comes at a time when they plan to increase their investments in India.
Crude purchased under the annual contract terms would be more lucrative for India than under spot contracts. Such contracts would also allow for purchasing additional quantities of crude at similar terms.
“Talks with West Asian suppliers such as Saudi Arabia, United Arab Emirates and Kuwait are in advanced stages. They have been our long-term suppliers and will be leaned on for extra cargoes at old terms and conditions," an Indian government official said, requesting anonymity.
An increase in oil prices is likely to put pressure on India’s fiscal and current account deficits, and comes against the backdrop of the 2019 Lok Sabha elections, where Prime Minister Narendra Modi is seeking a second term.
India is a major importer of Iran oil and imported 23.5 million tonnes in 2018-19 from the country. “There will be no impact of sanctions on the supply side. Our oil companies have the provision to get more cargoes than contracted for from their suppliers," said the government official cited earlier.
India is one of the top consumers of the Organization of the Petroleum Exporting Countries (Opec) that accounts for about 40% of the global output. Saudi Arabia is a prominent member of the grouping.
“The Iranian contracts were favourable in terms of them being free on board (FOB) basis, 60-day credit and free insurance. The April supplies were being done on March’s contract terms basis," the government official said. “The contracts with Iran got over in March. The new contracts could not be signed because of technical reasons and the discussions were on for quantity, price and terms when this US announcement came."
The US had granted exemptions to China, India, Italy, Greece, Japan, South Korea, Taiwan and Turkey “to ensure a well-supplied oil market" in November last year for six months after it reimposed sanctions on Iran.
“There will be additional supplies from other major oil producing countries. Indian refineries are fully prepared to meet the national demand for petrol, diesel and other petroleum products," India’s oil minister Dharmendra Pradhan said in a tweet on Tuesday.
Saudi Arabia is the second-largest supplier of crude and cooking gas to India. India imported 36.8 million tonnes of crude oil from Saudi Arabia, accounting for 16.7% of total imports in 2017-18. The UAE accounts for 6% of India’s crude imports, with Adnoc, the world’s 12th-largest producer, being the only foreign energy company to partner India’s strategic petroleum reserves programme.
People familiar with the developments said the US is working with Saudi Arabia and UAE to ensure that there is no crude shortage.
“The negotiations are still on. We are still hopeful of some concessions as these may be given by the US on a case-to-case basis," said the Indian official cited earlier.
Alice G. Wells, principal deputy assistant secretary for South and Central Asian Affairs, is visiting New Delhi for bilateral discussions.
“Government will continue to work with partner nations, including with the US, to find all possible ways to protect India’s energy and economic security interests," said a spokesperson for India’s ministry of external affairs.
India has also been sourcing crude from the US. It sourced 2.75% of its total oil requirements from the US during the April-January period.
“Sourcing crude oil from US is a different proposition given the transportation costs involved and its different composition. It leads to low refining margin and the plants needs to be recalibrated to process the US crude," said the first Indian government official cited earlier.
“The complete ban on Iranian exports raises the prospect of retaliatory measures by Iran, including blocking of oil tanker movements through the Strait of Hormuz, which has the potential to flare up oil prices. In this context, the increase in oil supplies by Opec in order to compensate for the loss of the Iranian oil from the market would play a key role in determining the oil prices in the near term," K. Ravichandran, senior vice-president and group head (corporate ratings) at Icra, said in a statement.
Elizabeth Roche contributed to this story.