Upperhand: India’s can shop around for crude, buoys Iran payment talks
With more crude supply potential from Saudi, UAE and Kuwait and with Iran having limited buyers for crude beyond India, India buoys $5 billion debt for with Iran
July 7, 2011 11:40 by p.deleon
Iran’s retreat from brinkmanship over crude exports to India as unpaid bills head towards $5 billion shows Asia’s third-largest oil importer has more options in today’s market than the sanctions-hit Islamic Republic.
Tehran and New Delhi, Iran’s second-largest oil buyer after China, have since December struggled to find a payment method for 400,000 barrels per day (bpd) of crude that would be acceptable to India’s allies, particularly the United States.
The National Iranian Oil Co (NIOC) wrote to Indian refiners on June 27 threatening to halt supplies in August if no solution was found, but within a week made a U-turn.
“The consumer has the upper hand because India is a big market for Iran,” said Victor Shum, a managing consultant at Purvin & Gertz in Singapore.
In the past month Indian refiners have bought nearly three million extra barrels offered by Saudi Arabia, the world’s biggest oil producer, and analysts say other suppliers are also ready to help meet its fast-growing crude demand.
Analysts feel there is enough spare capacity in the Middle East, mainly Saudi Arabia, to meet Indian needs.
“For India there are producers in the Middle East like Saudi Arabia, Kuwait and there are lots of Middle East crudes which are in the market which can provide alternatives to Iran crude,” said Sushant Gupta, an analyst with energy consultancy Wood Mackenzie in Singapore.
Saudi Arabia, Iraq and UAE grades can easily replace Iran Heavy and Iran Mix crude that Indian refiners normally buy, an Asian oil trader said.
India’s position has been further strengthened recently as, in addition to Saudi Arabia’s unilateral plan to boost output and its recent reduction in selling prices, leading global consumers have released extra barrels into the market.
“In the current scenario clearly India is in a more advantageous position as it is getting supplies on deferred payments,” the Asian oil trader added.
FEWER OPTIONS FOR IRAN?
Iran, OPEC’s second-biggest producer after Saudi Arabia and an opponent of the kingdom’s push for increasing production to cool prices, has limited buyers as many countries are put off by sanctions related to its nuclear programme.
Iran is the second-biggest supplier to India, meeting about 12 percent of its import needs with sales to refiners MRPL , Essar Oil , HPCL , BPCL and Indian Oil Corp .
“Iran will try its best to accommodate India and both countries will try to find a solution and resolve the issue because India needs oil and Iran wants to sell the oil. India is there right next door,” said Shum.
Iran on Thursday said the unpaid bills were the price for defending market share against Saudi Arabia.
“Preservation of market share has a price,” Iran’s OPEC governor, Mohammad Ali Khatibi, told Sharq daily in an interview published on Thursday.
Most of its existing buyers use bilateral agreements to pay — an option which is less attractive with India given the stark imbalance in trade between them.
“Iran … does not import Indian products to a value anywhere close to the value of India’s crude purchases. Hence, sitting on large amounts of Indian rupees would tie the hands of the Iranians in a way that their acceptance of Chinese and Korean payments … does not,” IHS senior Middle East energy analyst Samuel Ciszuk said in a note.
Efforts to find another currency have so far failed.
‘NO ONE IS BUYING INCREMENTAL IRANIAN’
One option for Iran if India buying dries up could be to sell oil through traders, though the U.S. and EU could move to restrict such trades.
Other avenues look equally difficult for Tehran.
“If Iran doesn’t sell its crude to India, they will have to float it. No-one is buying incremental Iranian,” said a trader with a western oil firm in Singapore.
Ciszuk said it could be difficult to find alternative homes for Iran’s heavier, sour crudes.
“For Iran, there is a massive marketing problem looming,” IHS said.
“If India stopped buying (Iran’s heavier and sour crudes) would be very hard to market, as few other refineries are geared towards taking them.”
If India gradually shifts its crude slate away from Iran, there would be little impact on global prices, the Asian oil trader said.
“But if it’s abrupt, it might impact Middle East prices and push up India’s import bill,” the trader added.
For now, it looks like India has the upper hand.
“If Iran needs to go through a middle man or a trader for oil, it’s going to be Iran which is hurt. India will buy because it needs oil. Iran may earn less. For India, it does not make a difference,” said Shum. ($1 = 44.430 Indian Rupees) (By Nidhi Verma; Additional reporting by Florence Tan in Singapore; Writing by Jo Winterbottom; Editing by Simon Webb)