India will stop importing crude oil from Iran following the US move to end sanction waivers, and will use alternative supply sources such as Saudi Arabia to make up for the lost volumes, top officials said.

On April 22, the Trump administration decided not to renew waivers that let countries buy Iranian oil without facing US sanctions.

“Until the waivers are not restored, I don’t think India can buy oil from Iran. We will stop importing oil from Iran,” said an official.

New Delhi is likely to press Washington for continuation of beyond its expiry on May 2 in talks scheduled later this month. “But purchases cannot be made in anticipation. We won’t be importing any oil from Iran,” he said.

India was the second largest buyer of Iranian crude oil after China. It bought some 24 million tonnes of crude oil from Iran in 2018-19.

The shortfall will be made from alternative supply sources available in Saudi Arabia, Kuwait, UAE and Mexico, officials said.

Oil Minister Dharmendra Pradhan tweeted that “a robust plan for an adequate supply of crude oil to Indian refineries” is in place. “There will be additional supplies from other major oil-producing countries; Indian refineries are fully prepared to meet the demand for petrol, diesel and other petroleum products,” he said.

The oil ministry said in a statement that a plan was in place to ensure supplies of crude oil from May when the waiver ends.

Last year, US President Donald Trump withdrew from the 2015 nuclear deal between Iran and world powers, and revived a range of sanctions against the Persian Gulf nation.

However, the US granted a six-month waiver from sanctions to eight countries - China, India, Japan, South Korea, Taiwan, Turkey, Italy and Greece - but with a condition that they would reduce their purchases of Iranian oil.

The waiver began in November and was to expire on May 2.

India had agreed to restrict its monthly purchase to 1.25 million tonnes to get the waiver. But since it had made robust purchases in the period prior to November, India’s overall crude oil imports from Iran totalled nearly 24 million tonnes in 2018-19 as compared to 22.6 million tonnes in 2017-18.

Alternative sources in place

Indian Oil Corp chairman Sanjiv Singh said refiners import crude oil from a wide range of sources and had been lining up alternative supplies for the past months.

“As far as Indian Oil is concerned, supplies will not be a problem. We have already lined up alternative sources,” he said, adding the impact of the US decision may reflect on global oil prices which may temporarily go up.

Indian Oil has the option to take 0.7 million tonnes of crude oil from Mexico on top of its committed purchase of 0.7 million tonnes during the year. From Saudi Arabia, it has an optional volume of 2 million tonnes on top of a term contract of 5.6 million tonnes.

Similarly, it has optional volumes of 1.5 million tonnes from Kuwait and another 1 million tonnes from the UAE.

“We have all the supplies tied up and globally crude will be readily available, but it is difficult to say what the impact will be on the price,” he added.

When Trump first pulled out of the nuclear deal, oil shot up to over $85 a barrel and it fell to near $50 after the US administration unexpectedly granted the waivers.

India, the world’s third largest oil consumer, meets more than 80 per cent of its oil needs through imports. In 2017-18, Iran was its third largest supplier after Iraq and Saudi Arabia and met about 10 per cent of its total needs.

Iranian oil is a lucrative buy for refiners as the Persian Gulf nation provides 60 days of credit for purchases, terms not available from suppliers of substitute crudes - Saudi Arabia, Kuwait, Iraq, Nigeria and the US.

Oil prices ease after supply report

Oil prices fell on April 24 after a report allayed concerns about tightening supply, ending a rally that took prices to their highest since early November on concerns that OPEC output cuts and sanctions would take too much oil out of the market.

The International Energy Agency, a watchdog for oil-consuming countries, said in a statement that markets are “adequately supplied” and that “global spareproduction capacity remains at comfortable levels”.

Crude oil prices for spot delivery rallied after the US demanded eight countries to halt oil imports from Tehran from May or face punitive action from Washington.

But some analysts say the market is still bullish. “The factors that could lead to higher prices are overwhelming,” said Carsten Fritsch at Commerzbank, adding a push towards $80 a barrel was more likely than a fall below $70.

‘US decision to hit Indian exports’

India’s exports will suffer due to the anticipated rise of 3-5 per cent in crude oil prices following the US decision to end the waivers, said the Trade Promotion Council of India (TPCI).

“The exports sector is bound to be hit as oil is an intermediate product in all kinds of production and services,” said TPCI chairman Mohit Singla.

“It is estimated that a 10 per cent increase in oil price will increase the trade deficit by $7 billion. This will in turn weigh on the rupee too, which is expected to depreciate further, making the import much costlier,” he said.

‘No impact on Chabahar port project’

The Chabahar port project being developed by India in Iran will not be impacted by the decision not to renew exemptions, said a US State Department spokesperson.

“The exception for reconstruction assistance and economic development for Afghanistan, which includes the development and operation of Chabahar port, is a separate exception, and is not affected by the announcement,” the spokesperson said.

“The president’s South Asia strategy underscores our ongoing support of Afghanistan’s development as well as our close partnership with India. We seek to build on our close relationships with both countries as we execute a policy of maximum pressure on the Iranian regime,” the spokesperson said.