India will count on Saudi Arabia and Iraq to make up for a decline in Iranian oil imports

• India’s oil minister, Dharmendra Pradhan, recently said that India would continue to purchase oil from Iran despite sanctions.
  
• However, Indian refiners will make up for the decline in Iranian oil imports by including options for additional volumes in their contracts with suppliers from Saudi Arabia and Iraq, according to the Press Trust of India.
  
• Iran is India’s third-largest supplier of oil behind Saudi Arabia and Iraq.

US sanctions on Iranian imports and payment routes kick in early next month, and in response, the Indian government has been devising feasible methods to supplement the shortfall in Iranian oil, which is relatively cheaper than oil sourced from other countries.

Given its hesitation on granting India a permanent waiver, the US is intent on helping India find a substitute. However, it is not opposed to granting India a short-term breather as it transitions to different suppliers.

While the country’s oil minister, Dharmendra Pradhan, recently said that India would continue to purchase oil from Iran despite sanctions, Indian refiners are taking concrete steps to make up for the decline in Iranian oil imports by turning to other countries in the Middle East, namely Saudi Arabia and Iraq.

Indian Oil Corporation (IOC) and other refiners have structured their contracts with suppliers in these two countries to allow for additional volumes should they need to plug a shortfall in supplies, according to a report by the Press Trust of India citing officials from these companies. The options for additional supplies can be made effective at any point in the year and are stipulated to cover a full five months worth of oil supplies sourced from Iran.

Last week, Reuters reported that Saudi Arabia would ship an additional 4 million barrels of oil to India in November following the imposition of sanctions. The move indicates a continued willingness to boost supplies to India. However, this is dependent on global oil prices staying within a manageable range. India already gets 25 million barrels a month from Saudi Arabia.

Interestingly, Iran is India’s third-largest supplier of oil behind Saudi Arabia and Iraq. India sources more than four-fifths of its crude oil requirements from abroad, and a full 10% from Iran. In September, Iraq pipped Saudi Arabia as India’s largest oil supplier.

A number of Indian petrochemical companies have stopped sourcing oil from Iran altogether. In July, Reliance Industries, which operates the country’s largest refinery, said it would completely halt all Iranian imports when US sanctions kicked in.