India would “continue to buy” crude oil from Iran though the shipments might see some reduction, economic affairs secretary Subhash Chandra Garg said on Friday. He, however, added that a decision on a payment mechanism with Iran would be taken later.
India has already placed an order to buy 9 million barrels of Iranian oil next month even as the US sanctions on Tehran come into force from November 4. India’s November purchase of Iranian oil will be sharply lower than its monthly purchases from Iran in April-September.
Meanwhile, the US said it was reviewing “very carefully” India’s decision to continue buying Iranian oil and purchase of Russia’s S-400 air defence system. PTI quoted US State Department spokesperson Heather Nauert saying India’s moves were “not helpful”. President Donald Trump had observed New Delhi would soon find out if it faced punitive steps.
The US is trying to cut off all oil imports from Iran to zero by November 4 following Trump’s decision in May to pull out of the 2015 multilateral deal that eased global sanctions in exchange for curbs on Iran’s suspected nuclear programmes and malign activities.
Meanwhile, finance minister Arun Jaitley and officials from finance, petroleum and external affairs ministries held discussions with Prime Minister Narendra Modi on Friday on the state of India’s oil economy and how to boost domestic production. India has been hit by both rising crude oil prices and a weakening rupee which have also resulted in sharp spike in domestic retail auto fuel prices.
As reported by FE earlier, Indian refiners have sought additional four million barrel of crude oil from Saudi Arabia in November, a move that might partly compensate for any fall in their imports from Iran consequent to the US sanctions on Iran.
India’s oil imports from Saudi Arabia have been to the tune of 25 million barrels/month in recent past. Saudi Arabia was India’s second largest source of oil imports in FY18, accounting for 15% of the country’s overall oil imports; Iraq is the top crue oil exporter to India with a 20% share in India’s overseas oil purchases.
Iran, which has emerged as the third largest exporter of oil in recent quarters, exported 8.1 million tonnes of crude to India in Q1FY19, compared with 5.6 mt in the year-ago quarter. Private refiners have been more aggressive in sourcing Iranian crude than the state-run firms.
To keep the Iranian oil flowing to India, a payment mechanism in rupee terms is also being explored as was done during the last sanction regime on Iran which ended in 2015. During the phase of last sanctions, Indian firms used to get payments for exports to Iran using the oil payments held in rupee balances at UCO Bank.
Last week, an inter-ministerial panel under commerce and industry minister Suresh Prabhu asked the ministry of petroleum and natural gas to explore a payment mechanism for Venezuela, Russia and Iran in rupee terms in order to curb the currency’s volatility. India imported 220 mt of crude oil in FY18, roughly 80% of its total consumption.
Source: Financial Express