Hormuz blocked, but India may get first delivery of Iranian crude oil after 7 years

While industry experts appear confident that the tanker is indeed headed to India, a change in its destination cannot be completely ruled out at this stage. Dark fleet tankers involved in sanctioned oil trade use frequent destination changes as part of their effort to avoid detection and hide their actual paths. Currently, given the sanctions waiver for Iranian oil and vessels transporting it, such tactics are not really required.

“The Indo-Iranian oil trade has flickered back to life. Following the US administration’s decision to grant a 30-day window for Iranian oil ‘on the water’ due to regional conflict, the vessel Ping Shun is now en route to Vadinar with 600,000 barrels of crude. This is the first such delivery since May 2019 and comes at a critical time for Indian refiners facing tightening inventories,” said Sumit Ritolia, lead research analyst, refining & modeling, at Kpler.

On March 23, two days after the US issued a sanctions waiver for Iranian oil already in tankers on water, Petroleum Ministry Joint Secretary Sujata Sharma had said that Indian refiners will decide on buying Iranian crude oil based on techno-commercial feasibility. Iran used to be a major oil supplier to India, but New Delhi stopped importing Iranian crude in 2019 after the first Donald Trump administration imposed heavy sanctions on Tehran and ended sanction waivers to major buyers of Iranian crude.

According to the general license issued by the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury on March 21 (as per India time), transactions related to the sale, delivery, or offloading of crude oil and petroleum products of Iranian origin—loaded on any vessel, including tankers sanctioned by the US, as of 12:01 eastern daylight time (9:31 am India time) on March 20—are authorised till April 19.

It is, however, not clear how new potential buyers of Iranian crude—including India—will make payments for any Iranian crude they might buy. This is because Iran and its banks remain out of the Society for Worldwide Interbank Financial Telecommunication (SWIFT)—the main messaging network through which international payments are initiated. Earlier, a mechanism for payments in Euros existed, but that channel also effectively shut down after most major buyers of Iranian crude stopped imports following the reimposition of sanctions on Tehran by the first Donald Trump administration.

For years now, over 90% of Iranian oil exports have been going to one country— China. Technically, this move by the US will not really increase the global oil supply—Iranian oil was already part of it with China’s purchases—but will enable other countries also to buy Tehran’s oil. When the sanctions waiver was announced, Iran claimed that it had no floating crude or surplus available for international buyers. Industry experts, however, had said that around 140-170 million barrels of Iranian oil was on water, including volumes that are already sold and those that are yet to be sold, according to ship tracking data.

Nonetheless, industry analysts say that the US move could see Indian refiners capitalise on the opportunity, just like they did by ramping up imports of Russian crude in recent weeks. Amid the tight global supply situation, every barrel counts. Vessel movements through the Strait of Hormuz have effectively been halted due to the conflict that began on February 28; Iranian oil shipments have continued unabated though. The Strait accounted for one-fifth of global oil and liquefied natural gas (LNG) flows. Around 2.5–2.7 million bpd of India’s crude imports — around half of the overall oil imports — have transited the Strait in recent months, while the longer-term average is around 40%. India depends on imports to meet over 88% of its requirement of crude oil.

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 insignificant. Back in 2009-10, India imported 22.1 million tonnes of Iranian crude and it accounted for 14.4% of India’s overall oil imports, according to data from the Ministry of Commerce and Industry. But as international sanctions on Iran intensified, hitting payment channels and creating other logistical hurdles, the volumes declined gradually to 11.2 million tonnes in 2014-15.

The sanctions were formally lifted in early 2016 as part of the Iran nuclear deal. Thereafter, Indian refiners started ramping up oil imports from Iran. India imported 13.6 million tonnes of Iranian oil in 2015-16, and 27.1 million tonnes in 2016-17, making Tehran the third-largest source of India’s oil imports behind Saudi Arabia and Iraq. Iran also did its bit to boost India’s purchases of its oil by offering discounted shipping and extended credit periods to Indian refiners.

In 2017-18, India’s Iranian oil imports 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 the first Donald Trump presidency. The last factor was the defining one over the next two years as Trump walked away from the Iran nuclear deal and re-imposed sanctions. A waiver was given by the US to major buyers of Iranian oil, which expired in 2019. In 2017-18, India’s Iranian oil imports were at 23.9 million tonnes, and crashed to just 2 million tonnes in 2019-20. No Iranian oil came to India after May 2019.