Indian refiners will decide to buy Iranian crude oil based on techno-commercial feasibility, a senior oil ministry official said on Monday. Amid the raging West Asia war, the United States on Saturday suspended sanctions on Iranian crude already loaded onto tankers for a month in a bid to allow as many barrels of oil as possible to flow into the international market to improve the global oil supply situation and curb spiraling crude oil prices.
“With respect to purchasing crude oil from any particular country, I would like to say that these are all techno-commercial decisions taken by oil marketing companies,” Petroleum Ministry joint undersecretary Sujata Sharma said in response to a question on whether Indian refiners will resume purchasing Iranian oil, which was last imported to India in 2019. Before that, Iran used to be one of the major sources of crude oil for India.
According to the general license issued on Saturday by the US Treasury Department’s Office of Foreign Assets Control (OFAC), transactions related to the sale, delivery or discharge of crude oil and petroleum products of Iranian origin, loaded on any vessel, including US-authorized tankers, as of 12:01 Eastern Time (9:31 am India Time) on March 20, are authorized until April 19.
However, it is unclear how potential new buyers of Iranian crude (including India) will make payments for any Iranian crude they may purchase. This is because Iran and its banks remain outside the Society for Worldwide Interbank Financial Telecommunications (SWIFT), the main messaging network through which international payments are initiated. There was previously a mechanism for payments in euros, but that channel was also effectively closed after most major buyers of Iranian crude suspended imports following the reimposition of sanctions on Tehran by Donald Trump’s first administration.
For years, more than 90% of Iranian oil exports have gone to a single country: China. Technically, this measure will not actually increase the world’s oil supply (Iranian oil was already part of it with purchases from China), but it will allow other countries to also buy Tehran’s oil. For its part, Iran has stated that it currently has no floating or surplus crude oil available to international buyers. Industry experts said shipping data shows that around 140-170 million barrels of Iranian oil are in the water, including volumes that have already been sold and those yet to be sold.
However, industry analysts say the US move could prompt Indian refiners to seize the opportunity, just as they did by increasing imports of Russian crude in recent weeks. Amid the difficult global supply situation, every barrel counts. Vessel movements through the Strait of Hormuz have effectively stopped due to the conflict that began on February 28. The Strait accounted for one-fifth of global oil and liquefied natural gas (LNG) flows. About 2.5 to 2.7 million bpd of India’s crude imports (about half of total oil imports) have transited the Strait in recent months, while the longer-term average is around 40%. India depends on imports to meet more than 88% of its crude oil needs.
payment problem
It is unclear how potential new buyers of Iranian crude, including India, will make payments for their purchase. Iran and its banks remain outside SWIFT, the main messaging network through which international payments are initiated. There was previously a mechanism for payments in euros, but that channel was also closed following the sanctions on Tehran by Donald Trump’s first administration.
Iran’s effective closure of the Strait, along with attacks on the region’s energy infrastructure, have caused global oil prices to rise. While some volumes of oil are being evacuated from West Asia via a pair of alternative routes that avoid the Strait, much of the supply through the narrow waterway has effectively been disconnected. However, according to observers and industry experts, US-sanctioned Iranian oil continues to flow through the Strait.
Story continues below this ad.
“India could emerge as a key demand center to watch, alongside Chinese buyers and other Asian countries. Historically, India was a major buyer of Iranian crude, importing significant volumes of Iranian light and heavy (crude) grades due to strong refinery compatibility and favorable trade terms. Following the tightening of sanctions in 2018, imports ceased from May 2019, with volumes replaced by grades from the Middle East, the US and others,” said Sumit Ritolia, Principal Analyst, Research, Refining and Modeling. at Kpler, a commodities market analysis company.
Currently, availability of Iranian crude oil is high, with an estimated 170 million barrels in the water, including floating storage and cargoes in transit, according to Kpler data. While some of these volumes are committed, a portion remains unsold, representing potential incremental supply.
India had been a regular buyer of Iranian oil, even during previous sanctions periods of the pre-Trump era, when import volumes of Iranian crude declined but were still not negligible. In 2009-2010, India imported 22.1 million tonnes of Iranian crude oil and accounted for 14.4% of India’s total oil imports, according to data from the Ministry of Commerce and Industry. But as international sanctions against Iran intensified, affecting payment channels and creating other logistical obstacles, volumes gradually decreased to 11.2 million tonnes in 2014-15.
Sanctions were formally lifted in early 2016 as part of the Iran nuclear deal. Thereafter, Indian refiners began increasing oil imports from Iran. India imported 13.6 million tonnes of Iranian oil in 2015-16, and volumes soared to 27.1 million tonnes in 2016-17, making Tehran India’s third-largest source of oil imports behind Saudi Arabia and Iraq. Iran also did its part to boost Indian oil purchases by offering discounted shipments and extended credit periods to Indian refiners. In 2016-17, Iranian oil accounted for 12.6% of India’s total crude oil imports of nearly 215 million tonnes.
Story continues below this ad.
In 2017-18, Iranian oil volumes declined to 22.6 million tonnes due to a few reasons: tensions between New Delhi and Tehran over the development rights of a gas field in Iran, India’s diversification of its supply, and Donald Trump’s first presidency. The last factor was what defined the next two years, when Trump walked away from the Iran nuclear deal and reimposed sanctions. The United States granted a waiver to major buyers of Iranian oil, which expired in 2019. In 2017-18, India’s imports of Iranian oil amounted to 23.9 million tonnes and plummeted to just 2 million tonnes in 2019-20. No Iranian oil reached India after May 2019.