India is clear that commercial considerations will drive its crude oil imports from the US and that oil bought from Washington should not be seen as replacing Iranian petroleum.

“Yes, scaling up oil imports from the US was discussed at the 2+2 dialogue between the two countries as part of measures to correct the trade deficit. But we are clear that these are commercial decisions — dependent on how competitively oil is priced and on the requirements of our refineries,” said a senior government official.

Besides, the US is working on improving the infrastructure for exporting oil and gas, said the official, adding that “once done the scope of scaling up imports will be higher”.

Asked if scaling up crude imports could mean replacing Iranian oil, the official told BusinessLine: “We are dealing with two issues separately and our stand has been communicated to the US.”

According to Vandana Hari, a Singapore-based oil market analyst, “India’s crude import needs will rise, with increasing refining capacity and fast-growing domestic consumption. The US crude is an additional option for Indian refiners.” But a refiner needs to weigh the crude suitability, taking into account the cost and freight charges, she said.

Indian refiners such as Indian Oil Corporation are already buying US oil. From April 2017 to February 2018, 2.1 million tonnes were bought, and more is on the way.

What works against the US

On the requirements of Indian refiners, she said: “The US has some sour crude from the Gulf of Mexico available for export, but the vast majority is light, sweet grades, from the shale regions. For an Indian refiner, the light sweet US grades will have to compete with West African, North Sea and Asian crude, all of which have a shorter haul to India. The sour US grades will be up against supplies from West Asia, which have an even shorter travelling time.”

In sync with the views of some of the oil traders, Hari says, “...another disadvantage of US crude is that so far only one port in the country is capable of directly loading a VLCC — the Louisiana Offshore Oil Port. Crude shipments from all the other Gulf of Mexico ports have to be done through ship-to-ship transfer if loading a VLCC, which involves additional costs, or they have to use the smaller Aframax or Suezmax tankers, which increases the unit cost of transporting crude.”

So, it is hard to imagine the US crude becoming mainstream for India, she said, adding that “it will probably serve as a top-up, an ad hoc spot purchase when the arbitrage works”.

Last March, the Trump regime identified India amongst 16 countries with which the US runs a trade deficit and whose trade policies needed to be investigated to find out the reason for the deficit. Since then, India has taken steps to buy more from the US, including oil.

According to Commerce Ministry officials, due to India’s efforts, the US’ trade deficit with India had reduced by $1.5 billion in April-July 2018 to $5.67 billion from $7.09 billion in April-July 2017. Officials from the Ministry of External Affairs said India would end up sourcing $2.5 billion of oil from the US this year.

At the recent 2+2 dialogue’, the MEA pointed to the US that while India would keep sourcing oil from the US and also increase buying from the UAE, stopping or drastically cutting imports from Iran would be difficult.

India told the US that while it was open to discussing alternative sources of crude, the focus had to be the prices as higher rates could impede economic growth in the country and also lead to inflation, the official added.

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