While India sought a waiver of the November 4 deadline, sources indicate that it also asked the US to facilitate “alternative and affordable” sweet-grade crude to replace Iran crude if required, as some Indian refineries are designed to use such crude. This would mean that India may still be lifting a small quantity of crude from Iran. On the other hand, the US is yet to clarify what it means by "significant reduction". Three years ago, before the sanctions were lifted, India had already cut down its Iran imports to six per cent of the total oil it imports. As per the current arrangement, the country was to buy more than 21 million tonnes of oil from Iran during the current financial year. This would be vital for Iran too, as India is the second largest consumer of Iranian crude, after China.
Bilateral trade between India and Iran is currently around $13 billion, of which oil imports from Iran alone make up $9 billion. Refineries generally procure crude based on their complexity and refinery configuration. Company officials indicate that the advantage with Iran is that it gives a higher import credit of 90 days compared to around 30 days by other countries. In case of a cut, India will have to replace the same amount of crude from the spot market or will have to look at additional supply from the Middle East. Interestingly, with Indian insurers refraining from covering Iranian oil cargoes in July, Iran has started offering insurance to Indian companies.
Officials also indicate that the option of Rupee-Rial trade still exists and that some companies had followed it even when sanctions were lifted. Under this, India used to pay a major chunk of its dues in Euros through Ankara-based Halk bank, while the remaining was paid through the rupee accounts that Iranian oil companies held with Uco Bank. If India continues to import crude, it may go back to cost, insurance and freight (CIF) basis, compared to a free-on-board (FOB) model followed post sanctions. Under the CIF model, the seller incurs the costs and pays freight, including insurance charges. In an FOB transaction, the buyer charters a vessel to lift crude oil from a terminal in the producing country and pays for the cost of shipping the crude.
A clarity on the issue is vital for India, as Iran is its third-largest oil supplier, after Iraq and Saudi Arabia. Between April 2017 and January 2018 only, Iran supplied about 18.4 million tonnes of crude to India.
Meanwhile, the future of Farzad B block investments by ONGC Videsh still hangs in balance. The overseas subsidiary of Oil and Natural Gas Corporation has already downgraded its $11 billion investment plans, by shelving the proposed $6.2 billion liquefied natural gas export facility in that country. A deal is yet to be signed on further development of the block. While India is reiterating that it is a commercial decision, with sanctions coming up, a final call may further be delayed. A similar uncertainty remains with India's participation in the development of Chabahar port.
For the time being, India's sandwiched oil diplomacy is set to continue.