OpeOluwani Akintayo, with agency reports
29 June 2018, Sweetcrude, Lagos — The Indian government has said it will stop the importation of crude oil from Iran by Nov.4, a report by Bloomberg has said.
According to the report, the country’s state-owned oil firms have been asked to prepare a blueprint of alternatives sources as it considers acquiescing to U.S. President Donald Trump’s demands for ending oil imports from Iran by Nov. 4.
While New Delhi says it does not recognise unilateral restrictions imposed by the U.S. on any country and instead follows United Nations sanctions, oil firms have been asked to be prepared for channels to pay for Iranian oil getting blocked by November, following sanctions against the Persian Gulf nation, they said.
Imports from Iran, which currently is India’s third largest supplier of oil after Iraq and Saudi Arabia, are likely to come down and will have to be replaced with more purchases from Saudi Arabia and Kuwait, they said. Imports from Iran after Nov. 4 will be possible only if Iran accepts alternates like rupee payments, the officials added.
The Trump administration is piling pressure on India, China, and other buyers to end all imports of Iranian oil by a Nov. 4 deadline as it looks to choke the Persian Gulf state’s economic lifeline with sanctions over its nuclear programme.
While a final view on the U.S. asking India and China to cut Iranian oil imports has not yet been taken, the petroleum ministry has asked refiners to tread cautiously and start looking at alternatives.
Oil Minister, Dharmendra Pradhan in Mumbai said India will decide on Iranian imports keeping its best interest in mind.
India, he said, is keeping its basket of imports open and will buy oil at competitive prices. “When we decide on Iran we will inform you,” he said.
“India is a stable market and a mature democracy. We have a vigilant leadership. We go by our interests.” Bringing down imports to zero, as desired by the U.S., may however not be feasible, officials said.
Oil ministry held discussions with oil refiners today and will follow them up with meetings with external affairs ministry next week. Clarity will emerge in one week’s time, an official said.
Replacing Iranian oil will not be a problem but margins will be hit as Tehran offers the best commercial terms, another official said.
High sulfur crude from the Middle-East, particularly from Saudi Arabia and Kuwait can easily replace the quantities being bought from Iran, he said. Other sources in Latin America and the U.S. are also some options, he added.
For Saudi Arabia, which last week piloted proposal to raise OPEC output by one million barrels per day, the sanctions against Iran presents an opportunity to recover market share that shrank after last year’s output curbs.
The U.S., which last month pulled out of a landmark nuclear deal and said sanctions will be re-imposed on Iran within 180 days, has threatened to cut off access to the American banking system for foreign financial institutions that trade with Iran.
This means India, Asia’s second-largest importer after China, will have to give up the euro payment mechanism for Iranian crude imports from November when U.S. sanctions against Iran come into force. But, it still could continue imports if Iran accepts an alternative payment or offers a longer credit period.
State Bank of India, the country’s largest lender, has communicated to oil refiners that the euro payment route will be not available after Nov. 3. The payment mechanism involves Indian refiners transferring funds to SBI when they use Germany-based Europaeisch-Iranische Handelsbank to pay euros to Iran.
During the first round of sanctions in 2012 when European Union joined the U.S. in imposing financial restrictions, India initially used a Turkish bank to pay Iran for the oil it bought but beginning February 2013 paid nearly half of the oil import bill in rupees while keeping the remainder pending till the opening of payment routes. It began clearing the dues in 2015 when the restrictions were eased.
Besides, New Delhi sought to get around the restrictions by supplying goods, including wheat, soybean meal and consumer products to Iran in exchange for oil.
Back in 2012, EU put restrictions on insurance of Iranian oil and ships carrying them. To get around the problem, Iran supplied oil in its own tankers.
Iran supplied 18.4 million tonnes of crude oil during April 2017 and January 2018 (first 10 months of 2017-18 fiscal).
Iran was India’s second biggest supplier of crude oil after Saudi Arabia till 2010-11 but western sanctions over its suspected nuclear programme pushed it to the 7th spot in the subsequent years. Sourcing from Iran increased following lifting of sanctions.
Iranian oil is a lucrative buy for refiners as the Persian Gulf nation provides 60 days of credit for purchases, double the amount of time given by other producers.
Following Trump’s announcement, companies are not allowed to strike new deals in the Iranian oil and energy sector.
By August, transactions in Iranian government debt or currency and purchases involving the country’s automobile sector or Iranian gold and other metals must end. In November, deals involving Iran’s oil and energy sector, sh