With the US giving no clear indication of its stand on India continuing oil trade with Iran, post the November 4 sanctions, industry trackers see zero possibility of waivers.
This would mean that the local refiners, who are dependent on Iranian crude oil, will be forced to cut imports from the Gulf nation or risk being locked out of the US financial system.
The American sanctions will come into effect from November 4. However, senior government officials here are hopeful of a positive response from the US.
“We are having talks with the US (State Department). We are still hopeful of a positive response,” said an official involved with the developments.
According to Vandana Hari, Founder of Vanda Insights, Singapore-based oil market analyst, “The US sanctions will impact term as well as spot purchases, as the issues around payment and insurance are the same.”
Meanwhile, India is looking for a way to beat the sanctions. “The rupee payment mechanism that was worked out earlier is already in place. We continue to use it as an interim arrangement. But, we are also working out other models of payment, including a better rupee payment mechanism, if possible,” the official said.
On shipping challenges, he said, Iranian ships will be delivering the commodity at the Indian ports on CIF (Cost, Insurance and Freight) basis.
Rupee-payment
According to Hari, “India and Iran had found mutually-acceptable workarounds for payment as well as insurance in the previous sanctions era. I doubt there is any novel or unexplored way of beating the restrictions, so I expect them to fall back to the tried-and-tested routes. Iran may not be averse to accepting payment in rupees, and using the revenues to buy goods from India. Barter trade is another option.”
“The issue of securing a US waiver has been pushed down the road, but cannot be avoided. A waiver will be essential unless a refiner wants to risk being locked out of the US financial system. I assume the Indian refiners still buying Iranian crude are hoping the government will secure it for them,” said Hari.
Echoing similar thoughts, Sri Paravaikkarasu, Director - Asia, Oil at FGE, a global oil & gas consultancy firm, said: “Indian companies will have to face severe consequences from the US treasury if they breach the sanctions.”
“What we saw with Japan and South Korea, especially South Korea that lifts a lot of condensate from Iran — the US is not considering giving any waiver — we highly doubt whether there will be any waivers given to India. This means Indian refiners will be forced to cut Iranian imports,” she added.
“Private players such as Reliance Industries Ltd and Essar Oil (now Nayara Energy) will clearly bring it down to zero. This will leave only the national oil companies like Indian Oil Corporation. We think most of them will be forced to cut sharply in the fourth quarter. We believe Indian Oil Corporation has a term deal with Iran and this might go through the next calendar year meaning next March,” she said.
Cheaper crude
Iranian crude is a substantial portion of Indian Oil Corporation’s and MRPL’s diet, so the two companies will try and hold on to it as much as they can, said Hari adding, “There are other Middle-Eastern grades capable of replacing Iranian crude, but none of those producers are offering discounts like Iran. Ultimately, the refiners will have to continue weighing the trade-off between cheaper crude and cost of jumping through hoops to buy it.”