India spent the past five years cutting its Iranian oil imports to comply with international sanctions. Now, Asia's second-largest energy user needs the curbs to ease as fighting threatens its supply from Iraq.
Tougher U.S. sanctions on Iran meant India was obliged to halve purchases from the Persian Gulf nation since 2009. Indian refiners, which get 85 percent of their crude from overseas, say they expect the restrictions to soften, Bloomberg reported on June 20.
"We may be exempted from cutting imports from Iran this year," P.P. Upadhya, managing director of Mangalore Refinery and Petrochemicals Ltd., the second-biggest Indian buyer of Iranian crude, said. "We expect the U.S. will be softer on Iran as the conflict deepens in Iraq."
Benchmark crude prices are trading at a nine-month high as Islamic militants battle government forces in Iraq, which is now India's second-biggest oil supplier. That's boosting costs for importers and taking a toll on India's currency.
Iran was the second-biggest supplier to India until three years ago, when it was displaced by Iraq. India cut purchases from Iran to 11 million metric tons in the year ended March 31, compared with a peak of 21.8 million tons in 2008-09, according to data from the oil ministry. The nation's refiners bought about 25 million tons from Iraq.
"India will have to get the additional crude from wherever it can but with Brent oil rising, it'll have to pay a higher price," Praveen Kumar, an analyst at energy consultant FGE in Singapore, said by phone yesterday. "As for India and Iran relations, Indian refiners have had a long-standing relationship with National Iranian Oil Co. and can take more Iranian crude."
Indian refiners owe Iran $4.2 billion for crude and 39 percent will be paid off by next month, an oil ministry official said yesterday. The payments, held up by U.S. sanctions on Iran, will be made in dollars and transferred through the United Arab Emirates' central bank, the official said.
Indian refiners have been asked to prepare for any supply disruptions from Iraq and diversify their crude purchase sources, the oil ministry said in a statement yesterday. State-run refiners plan to import 19.4 million tons of crude, or 20 percent of their requirement, from Iraq in the year ending March 31, compared with 13 percent a year earlier, according to the statement. There have been no supply disruptions so far, the ministry said.
The territorial advances by the Islamic State in Iraq and the Levant has raised the specter of civil war in OPEC's second-biggest oil producer. ISIL, a breakaway group from al-Qaeda, is fighting government forces near Baghdad, away from the southern part of the country where most of the oil fields are located.
"The real problem will be when the fighting reaches the south," L.K. Gupta, chief executive officer of Essar Oil Ltd. (ESOIL), India's biggest buyer of Iranian crude, said by phone June 18. "There's enough oil in the market, so global supplies may not be affected, but the crisis can push up prices."
Iran shipped about 28 percent more crude oil and condensate this year after reaching an interim accord over its nuclear program with world powers, customs data and estimates from the International Energy Agency show. Diplomats are meeting again this week to reach a long-term agreement before the existing pact expires July 20.
"The entire Iraq crisis will be nullified for India if the U.S. eases Iran sanctions," B.N. Bankapur, an oil industry consultant and former refineries director at Indian Oil Corp., said by phone June 18. "It is vital because Indian refiners will otherwise become too dependent on Saudi Arabia."