India's largest buyer of Iranian crude is scouting for alternative supplies from the spot market to pre-empt a possible disruption in shipments from Iran after India's central bank closed a longstanding payment route for such transactions, The Wall Street Jpurnal reported.
Mangalore Refinery and Petrochemicals Ltd., which buys more than half of its crude oil from Iran, has issued three spot tenders in as many days, the latest for loading as early as next month.
The flurry of tenders will likely boost sentiment for the heavier, high-sulfur grades from the Middle East, whose premiums are declining in the spot market due to weak fuel oil margins.
While both New Delhi and Tehran could be hard pressed to find an early resolution, there's greater pressure on Iran, which has been increasingly isolated from its customers due to trade restrictions and sanctions aimed at slowing down its nuclear program.
For now, crude supplies from Iran appear normal, and both countries are trying to hammer out an alternative mechanism to continue trade after the Reserve Bank of India, the country's central bank, last week said all trade-related transactions with Tehran had to be done outside the Asian Clearing Union, used by Indian refiners to pay for Iranian crude.
"But there's no guarantee (that normal supplies) will continue," a senior MRPL executive told Dow Jones Newswires. MRPL had one crude cargo scheduled for loading from Iran on Wednesday.
A senior Indian official Tuesday said Iran has proposed a temporary payment channel through a bank based in Germany and has said that it will continue usual shipments of crude oil to Indian refiners in January.
Although the United Nations sanctions don't ban countries from buying crude from Iran, difficulties in financing such transactions have limited the number of trade partners. This has forced Iran to store large quantities of unsold crude oil in tankers, about 21.7 million barrels as of the end of November, the International Energy Agency said recently.
Iran remains India's second biggest crude supplier after Saudi Arabia.
A slew of spot tenders from MRPL has taken the regional market by surprise because of the prompt nature of deliveries sought by MRPL. Its latest tender seeks 650,000 barrels of high-sulfur crude--the kind it normally buys from Iran--for loading in February, when trade for Middle East crude is moving on to March-loading cargoes.
"It's a question of how many such prompt cargoes are available," said a Singapore-based crude oil trader.
It remains to be seen if other Indian refiners will follow suit in seeking spot cargoes.
Unlike MRPL, which gets more than half its supplies from Iran, other larger Indian refiners are less susceptible to any possible supply disruptions.
"We buy six to eight cargoes from Iran a month. I can't make it up all from the spot market, but we are keeping ready in case of any disruptions," the MRPL executive said. "We can decide to buy some or all of the cargoes being sought."