India is allowing state refiners to import Iranian oil with Tehran arranging tankers and insurance after firms including the country’s top shipper Shipping Corp of India (SCI) halted voyages to Iran due to U.S. sanctions, Reuters cited sources as saying on August 3.
According to Reuters, “New Delhi’s attempt to keep Iranian oil flowing mirrors a step by China, where buyers are shifting nearly all their Iranian oil imports to vessels owned by National Iranian Tanker Co (NITC).”
On May 8, U.S. President Donald Trump declared the United States’ withdrawal from the Joint Comprehensive Plan Of Action (JCPOA), or Tehran’s nuclear deal with world powers, and re-imposing sanctions on Iran.
Immediately after the first batch of U.S. sanctions came into effect on August 6, giant European companies including France's supermajor oil and gas company Total and carmaker Renault suspended plans to invest in Iran.
A second batch of U.S sanctions targeting Iran's oil sector and central bank are to be re-imposed on November 4.
Trump warned that those who don't wind down their economic ties to Iran "risk severe consequences."
Meanwhile, U.S. officials have warned they will reduce Iran’s oil exports to zero.
However, a SCI official told Reuters, “We have the same situation (as most Western shippers) because there is no cover, so we cannot go (to Iran).”
New Delhi turned to the NITC fleet after most insurers and reinsurers had begun winding down services for Iran, wanting to avoid falling foul of the sanctions given their large exposure to the United States.
SCI had a contract until August to import Iranian oil for Mangalore Refinery and Petrochemicals Ltd (MRPL), two sources familiar with the matter said.
Eurotankers, which had a deal with MRPL to import two Iranian oil cargoes every month, has also said it cannot undertake Iranian voyages from September, the sources said.
The sources spoke on condition of anonymity as they were not allowed to talk to the media about commercial deals.
“The shipping ministry has given refiners permission to buy Iranian oil on a CIF (cost, insurance, and freight) basis,” a government source said.
Under a CIF arrangement, Iran would provide shipping and insurance, enabling Indian refiners to continue purchases of the country’s oil despite the non-availability of coverage by Western insurers due to restrictions imposed by Washington.
Confirming Reuters’ report, the Times of India reported on September 4, “The decision indicates New Delhi’s attempt to drive a hard bargain to keep some Iranian oil flowing and the planned $6 billion deal with Russia. U.S. Defense Secretary Jim Mattis and Secretary of State Michael Pompeo are scheduled to hold talks with their Indian counterparts on Thursday.”
India wants to continue buying oil from OPEC member Iran as Tehran offers almost free shipping and an extended credit period, Reuters noted.
Nevertheless, according to Bloomberg, “For all the pushback and negotiations, an emerging pattern shows U.S. sanctions are succeeding in throttling Iran’s sales to its customers even before the measures take effect in early November. While America initially wanted a complete halt in purchases, traders are now concerned that even a revised aim for only cuts would take out enough supply to create a market deficit -- which other producers may struggle to fill.”
Facts Global Energy (FGE) estimates Iran’s exports will drop to below 1 million barrels a day by mid-2019, while industry consultant Energy Aspects Ltd. expects a plunge of 1.5 to 1.7 million in daily shipments by the end of this year from the current levels of about 2.5 million.
With concerns growing that global spare capacity will be stretched if other producers such as Saudi Arabia pump more to make up for the loss, the oil market is revealing risks of a crunch, Bloomberg reported.