New Delhi: The National Democratic Alliance (NDA) government has had conversations with the Donald Trump administration on the issue of energy imports from sanctions hit Iran, India’s external affairs minister S. Jaishankar said on Tuesday and added that it was not a ‘static’ issue.
India was among Iran’s top oil buyers with imports of 23.5 million tonnes in 2018-19. With the US’s conditional waiver for Iranian oil imports to eight countries, including China and India, expiring on 2 May, India stopped all oil imports from the Persian Gulf nation. While sourcing crude from other suppliers is not an issue, the price at which it is bought will impact the Indian economy.
India wants predictable and affordable supply of energy, added S. Jaishankar and said, “We are in dialogue with all suppliers including Iran."
The statement comes in the backdrop of drone attacks on Saudi Aramco’s facilities causing the biggest ever disruption in oil suppliers, India is preparing to stem the impact of the price surge. Saudi Aramco has though assured India it would honour its supply contracts despite the production cuts.
Every dollar increase in the price of oil raises the import bill by Rs10,700 crore on an annualized basis. India spent $111.9 billion on oil imports in 2018-19. A record gain in crude oil prices could further aggravate India’s fiscal situation and make it tougher for the government and the central bank to effectively combat a slowdown in economic growth.
“The issue (Iran) that has come up is not of our making," Jaishankar said and added, “We have to see if the landscape changes."
The cost of the Indian basket of crude, which averaged $47.56 and $56.43 a barrel in FY17 and FY18, respectively, was $59.35 in August, according to data from the Petroleum Planning and Analysis Cell. The average price jumped to $65.11 a barrel on 16 September. The Indian basket of crude represents the average of Oman, Dubai and Brent Crude.
US secretary of state Michael Richard Pompeo has promised India of adequate crude oil supplies even as India, the world's third-largest oil importer, has been trying to buffer its consumers from the spike in global prices.
India had kept its option open to purchase oil from Iran, with then foreign minister late Sushma Swaraj informing her visiting Iranian counterpart, Javad Zarif, that New Delhi will take a decision after the national polls come to an end on 23 May.
Since India imports over 80% of its crude needs and 18% of natural gas, higher energy prices stoke inflation and hurt the country’s economic growth. In a first, Indian Oil Corp., the country’s largest refiner, has inked two term contracts totalling 4.6mt of US crude oil for 2019-20 from Norway’s Equinor ASA and Algeria’s state energy company Sonatrach. India is also sourcing liquified natural gas and oil from the US, with Indian firms investing $4 billion in US shale gas assets.
India has oil reserves equivalent to at least 75 days of net imports. This will increase further to 87 days once the second phase of Indian Strategic Petroleum Reserves, which aims to add 12 days of crude storage, is operational. This includes the refineries’ inbuilt capacity of 65 days.
The geopolitical event in Saudi Arabia has raised fears of a rise in fuel prices in India, which in turn may stir demand for return of state control on fuel pricing. The surge in oil prices comes at a time when the Narendra Modi government is trying to boost the economy after GDP growth slumped to the slowest in more than six years. An increase in inflation stoked by higher fuel prices will also leave less space for RBI to cut interest rates to combat the slowdown.