Will India buy Iranian oil after US sanctions waiver? Depends on refiners’ techno-commercial feasibility, says Govt

According to the general license issued by the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury on Saturday, transactions related to the sale, delivery, or offloading of crude oil and petroleum products of Iranian origin — loaded on any vessel, including tankers sanctioned by the US, as of 12:01 eastern daylight time (9:31 am India time) on March 20 — are authorised till April 19.

It is, however, not clear how new potential buyers of Iranian crud—including India—will make payments for any Iranian crude they might buy. This is because Iran and its banks remain out of the Society for Worldwide Interbank Financial Telecommunication (SWIFT)—the main messaging network through which international payments are initiated. Earlier, a mechanism for payments in Euros existed, but that channel also effectively shut down after most major buyers of Iranian crude stopped imports following the reimposition of sanctions on Tehran by the first Donald Trump administration.

For years now, over 90% of Iranian oil exports have been going to one country— China. Technically, this move will not really increase the global oil supply — Iranian oil was already part of it with China’s purchases — but will enable other countries also to buy Tehran’s oil. On its part, Iran has claimed that it currently has no floating crude or surplus available for international buyers. Industry experts said that shipping data shows that around 140-170 million barrels of Iranian oil is on water, including volumes that are already sold and those that are yet to be sold.

Nonetheless, industry analysts say that the US move could see Indian refiners capitalise on the opportunity, just like they did by ramping up imports of Russian crude in recent weeks. Amid the tight global supply situation, every barrel counts. Vessel movements through the Strait of Hormuz have effectively been halted due to the conflict that began on February 28. The Strait accounted for one-fifth of global oil and liquefied natural gas (LNG) flows. Around 2.5–2.7 million bpd of India’s crude imports — around half of the overall oil imports — have transited the Strait in recent months, while the longer-term average is around 40%. India depends on imports to meet over 88% of its requirement of crude oil.

The Strait’s effective closure by Iran, along with attacks on energy infrastructure in the region, have led to a surge in global oil prices. While some oil volumes are being evacuated from West Asia through a couple of other alternative routes that bypass the Strait, a bulk of the supply through the narrow waterway has effectively gone offline. According to industry watchers and experts, the US-sanctioned Iranian oil, however, continues to flow through the Strait.

“India could emerge as a key demand centre to watch, alongside Chinese buyers and other Asian countries. Historically, India was a major buyer of Iranian crude, importing significant volumes of Iranian light and heavy (crude) grades due to strong refinery compatibility and favourable commercial terms. Following sanctions tightening in 2018, imports ceased from May 2019, with volumes replaced by Middle Eastern, US and other grades,” said Sumit Ritolia, lead research analyst, refining & modeling, at Kpler, a commodity market analytics firm.

Currently, Iranian crude availability is high, with an estimated 170 million barrels on the water, including floating storage and cargoes in transit, as per Kpler data. While part of these volumes is committed, a portion remains unsold, representing potential incremental supply.

India had been a regular buyer of Iranian oil, even during previous sanctions periods of the pre-Trump era, when import volumes of Iranian crude declined, but were still not insignificant. Back in 2009-10, India imported 22.1 million tonnes of Iranian crude and it accounted for 14.4% of India’s overall oil imports, according to data from the Ministry of Commerce and Industry. But as international sanctions on Iran intensified, hitting payment channels and creating other logistical hurdles, the volumes declined gradually to 11.2 million tonnes in 2014-15.

The sanctions were formally lifted in early 2016 as part of the Iran nuclear deal. Thereafter, Indian refiners started ramping up oil imports from Iran. India imported 13.6 million tonnes of Iranian oil in 2015-16, and the volumes shot up to 27.1 million tonnes in 2016-17, making Tehran the third-largest source of India’s oil imports behind Saudi Arabia and Iraq. Iran also did its bit to boost India’s purchases of its oil by offering discounted shipping and extended credit periods to Indian refiners. In 2016-17, Iranian oil made up 12.6% of India’s total crude oil imports of almost 215 million tonnes.

In 2017-18, the Iranian oil volumes declined to 22.6 million tonnes due to a few reasons — tensions between New Delhi and Tehran over the development rights of a gas field in Iran, India’s diversification of its supply and the first Donald Trump presidency. The last factor was the defining one over the next two years as Trump walked away from the Iran nuclear deal and re-imposed sanctions. A waiver was given by the US to major buyers of Iranian oil, which expired in 2019. In 2017-18, India’s Iranian oil imports were at 23.9 million tonnes, and crashed to just 2 million tonnes in 2019-20. No Iranian oil came to India after May 2019.