Crude imports from Iran, its importance for India and the back-up plan

Crude oil is the backbone of any economy, especially India, which is the third largest consumer of oil in the world. As it imports more than 80 per cent of the oil it consumes, India’s bilateral and multilateral relations with the oil exporting economies gains importance.

India imports highest amount of crude oil from Saudi Arabia followed by Iraq and Iran. However, the supply from Iran might dry up in November and India needs a Plan B, Plan C and Plan D in place.

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Why will crude oil supply from Iran dry up?

Historically, India and Iran have a cordial diplomatic relationship. However, the same cannot be said for the US and Iran. The two countries have locked horns on more than one occasion specially over Iran’s nuclear forays, especially since Trump came to power. A few months back Trump-led US government decided to re-impose sanctions on the Iran.

These sanction include an import ban on Iranian crude and US expects its other trading partners, including India to honour it. Though the Indian government has said that it follows UN sanction and not unilateral sanctions imposed by individual countries, US has been mounting pressure on India. Last week, Dharmendra Pradhan, the minister for oil and natural gas said that the government will take a decision on Iran soon.

Why is Iran important to India?

India is the second largest buyer of Iranian oil, after China.Crude imports from Iran stood at 27.2 million tons worth $11.1 billion in 2017-18.

If India bows to US pressure and stops importing oil from Iran from November 4, it needs to source 27.2 million tons of crude.

India’s back up plan

As the Minister of Oil and Natural Gas said, India has a multi-country basket of crude. Therefore, experts feel that replacing Iranian oil may not be a problem but margins might be impacted as Tehran offers the best commercial terms.

Options are – high sulphur crude from the Middle-East, particularly from Saudi Arabia and Kuwait, Latin America, and the US. India already imports crude from these countries and will have to renegotiate contracts to increase the supply.

Besides these, India also imports oil from Russia and the US.

As oil prices and quantities are negotiated months in advance, Indian government needs to make it’s position clear, so that oil marketing companies can look for alternatives.

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