For India, though the US oil supply may be reassuring, it would not like to completely lose Iranian market with which it has had traditional ties. (Reuters )
For India, though the US oil supply may be reassuring, it would not like to completely lose Iranian market with which it has had traditional ties. (Reuters )

Now US may offer oil to India on concessional terms

  • The US has also indicated its intent of supplying increased quantities of oil and gas to India on a short notice to prevent the country from facing any shortages
  • The talks with the US on oil supplies hinges on the terms of exports

New Delhi: The US may offer oil and gas to India on concessional terms from its own reserves to help the country tide over lifting of Iran sanction waiver that would suck out close to 10% of Indian crude imports.

Diplomatic sources said the talks between Indian officials and the visiting US Principal Deputy Assistant Secretary of State for South and Central Asia, Alice Wells, on Tuesday focused on ways to ensure that India does not face oil shortage.

The US has also indicated its intent of supplying increased quantities of oil and gas to India on a short notice to prevent the country from facing any shortages.

It has also hinted that key energy producers including the United Arab Emirates (UAE) and Saudi Arabia have been asked to ensure stable oil supplies to all friendly countries and partners.

The talks with the US on oil supplies hinges on the terms of exports.

Sources said that the US could offer concessions on such oil exports that could be at par with the terms India currently enjoys with Iran. The Islamic Republic offers cheaper freight and a 60-day credit period to Indian importers such s Indian Oil Corporation, Mangalore Refinery and Petrochemicals (MRPL) and Nayara Energy (formerly Essar Oil).

"The offer has been indicated and this needs to be worked out in detail post May 2, when petroleum-related Iran sanctions waiver is lifted on five oil importing countries including India. Transportation cost is an issue to bring oil from the US," the diplomatic source said.

Though Indian oil companies have started importing oil from the US for past couple of years, the quantity remains miniscule and forms just about 1 per cent of country's total oil imports. But the quantity can grow with US shale oil market becoming relevant again at current crude levels and an increase in total rig count in the world's largest oil guzzling nation.

"The rig count in US has risen sharply in past few months (1,038 now) indicating that oil production there is on the rise. One estimate suggests that US will pump in additional 4 million barrels of crude oil in next couple of years. This provides ample opportunity for India to enter long-term contracts there. Already, spot purchase contracts from US have seen a rise," said a government official aware of the development.

Emergence of the US as a major oil supplying nation indicates that it would be the biggest gainer of its decision to lift Iran sanction waiver. Apart from India, other major oil importing countries are also looking to increasing crude oil imports from America.

The shift to US would not be sudden as gas transportation company GAIL, oil marketing firm Bharat Petroleum Corporation Ltd (BPCL) and country's largest oil refiner Indian Oil Corporation have sealed deals for supplies of the US crude earlier as well. The shale oil price there has also become very competitive in comparison to Middle-East and Gulf crude.

In fact, the narrowing of price differential between international crude oil benchmark Brent and Dubai crude has made the US oil more competitive even after higher transportation charges. A discount of $2-4 per barrel on American oil to Dubai crude makes it cover freight costs.

For India, though the US oil supply may be reassuring, it would not like to completely lose Iranian market with which it has had traditional ties. This would mean India could continue to adopt the same strategy as it did prior to 2015 when a West-imposed sanction on Iran affected oil supplies.

This would mean that India would possibly use escrow accounts for payment against crude oil imports, possibly in rupee, and may cut down its import a bit but is most unlikely to stop its oil import from Iran completely.

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