With the US government ending sanction waivers for importing oil from Iran, India is planning to step up supplies from countries including the US, Saudi Arabia, UAE, Mexico, Kuwait and Bahrain in order to minimize the impact, government sources said Tuesday.
With oil imports from Iran likely to come to a halt, the government expects volumes to go up from other countries. In the absence of a relatively cheaper source of oil supplies (Iran), prices of crude oil imports are expected to rise. Global oil prices have been rising for the last couple of days after the United States said it will stop granting sanction waivers to any country importing Iranian crude or condensate beginning May 2, 2019.
The government has “a robust plan in place for adequate supply of crude oil to Indian refineries,” Minister of Petroleum and Natural Gas Dharmendra Pradhan said Tuesday. “Government has put in place a robust plan for adequate supply of crude oil to Indian refineries. There will be additional supplies from other major oil producing countries;Indian refineries are fully prepared to meet the national demand for petrol,diesel & other Petroleum products,” Pradhan said in a tweet.
India meets nearly 10 per cent of its crude oil requirements through imports from Iran, which was its fourth largest supplier last year. Disruption caused by supplies from Iran have implications for the entire economy – as rising prices can push up current account deficit and put macroeconomic parameters at risk. Iran also offers cheaper freight and 60-day credit facility to Indian refiners, making imports relatively cheaper, sources said, adding it may be difficult to get similar benefits from other countries.
“In 2018-19 (11 months), the total import of POL (petroleum, oil and lubricants) was $128.7 billion. The main suppliers were Saudi Arabia, Iraq, UAE and Iran which accounted for a little above 50% of the supplies…Iran is the fourth largest supplier of oil to India based on 2018-19 and hence an embargo would mean sourcing the same from other countries which may not provide the same benefits as were provided by Iran in the form of price and credit facility,” CARE Ratings said in a report. Analysts expect higher imports of oil and shale gas from the US to pick in the coming months. While high transport cost can potentially make such imports costlier, India and the US are expected to work out beneficial terms of trade early next week, sources said. State-owned refineries started importing crude oil from the USA from October 2017 onwards and until February had imported about 30 million barrels of crude oil from US suppliers.
State-owned refineries like Indian Oil Corporation also have the option to increase import volumes from countries such as Saudi Arabia, Kuwait and Mexico as part of long term supply contracts signed with these countries.
Oil prices hit their highest since November on Tuesday and Brent crude futures rose as high as $74.70, a level not seen since November 1, before paring some gains on expectations that global supply would remain robust. By 1255 GMT Brent futures were at $74.12, up 8 cents, or 0.11 percent, from Thursday’s close. U.S. West Texas Intermediate crude futures were at $65.69 per barrel, up 14 cents or 0.21 percent, having earlier hit their highest since October at $66.19, as per a Reuters report.