Iran is India's second biggest crude supplier after Saudi Arabia, accounting for 13 percent of imports
India's top buyer of Iranian crude is seeking as much as 2.6 million barrels from the spot market, in the face of any possible supply disruption due to a payments row between the two countries.
India's central bank said in December payments to Iran could no longer be settled through a longstanding clearing house system run by central banks, prompting fears India’s $12bn annual oil imports from Iran could be threatened.
Mangalore Refinery and Petrochemicals Ltd rarely buys low sulphur, or sour, crude in the spot market as it imports about 150,000 barrels per day from Iran on a long-term basis.
“The tenders are due to the Iran issue. No one knows what will happen,” a source with direct knowledge of MRPL’s trade operations said. “MRPL has to float tenders to hedge itself and arrange for supplies in advance.”
MRPL last bought high sulphur, sweet, crude oil through a tender in July.
In the first signs that the payments row with Iran is beginning to impact the global crude market, the refiner this week issued tenders to buy 1.3 million barrels of sour crude in two equal sized parcels for lifting in February and March, and 650,000 barrels of sweet crude for February.
A fourth tender seeking the supply of 650,000 barrels sweet grades for March lifting was issued on Monday. Traders said it was expected as MRPL had not taken a February Nile Blend cargo from its parent firm Oil and Natural Gas Corp.
“At the time of finalisation of the four tenders it will take a call on whether to issue more tender or not,” the source said. “Also by then clarity is expected to emerge on a payment mechanism.”
MRPL’s Managing Director U K Basu declined to comment.
“I’m sure we’ll see more of these tenders, especially for MRPL,” said Praveen Kumar, who heads consultancy FACTS Global Energy’s South Asia oil and gas team. “They are highly reliant on Iranian crude.”
Iran is India’s second biggest crude oil supplier after Saudi Arabia, accounting for about 13 percent of its crude imports.
The Indian decision came within weeks of President Barack Obama visiting New Delhi. Washington praised the move, saying it would reduce what it sees is a misuse of funds by Iran to support its nuclear activity, which the West suspects has military aims.
On Tuesday, Iran offered a stop-gap plan for oil supplies to India for January, but a lasting solution to the row over how to pay for supplies may take weeks.
India’s oil minister Murli Deora on Wednesday said he hoped the payment impasse would be resolved soon.
A senior Indian finance ministry source told Reuters that a meeting of stakeholders had been called on January 7 in New Delhi to work out a solution to the payments row.
Iran has suggested Indian firms open an account in the Iran-owned Frankfurt-based EIH bank.
The companies have asked the State Bank of India to open an account in EIH to transfer money into the central bank of Iran, which in turn will pay it into a National Iranian Oil Company (NIOC) account.
A senior SBI official told Reuters that while SBI had no problems routing oil payments through EIH, clarity was needed on issues of international sanctions facing that bank.
The US Treasury Department in September sanctioned EIH for facilitating billions of dollars of transactions with Iranian banks that the US and European Union have blacklisted for aiding Iran’s nuclear or missile programmes.
MRPL normally buys seven to eight cargoes a month from Iran, which include Iran Heavy and Iran Mix grades.
The first source said MRPL has not yet made freight payment for some of its shipments of Iranian crude.
Another source said MRPL has sent a letter to its shipping agents asking them if they were willing to accept payments in currencies other than the US dollar and euro as the company’s bank was unable to process payments “due to some system changes” related to transactions with Iran.
“The situation is very difficult for both the owners and the charterers. We are trying our best to make the payments at the earliest,” it said in the letter.
MRPL’s tender is for unusually prompt supplies, as most end users in Asia have completed February purchases, an Asian oil trader said.
ICRA, the local unit of ratings agency Moody’s, said the India-Iran oil payments row could hit MRPL’s profitability if the dispute continues beyond a month.
MRPL, a subsidiary of state-run explorer Oil and Natural Gas Corp, runs a 236,400 bpd coastal refinery in the southern Indian state of Karnataka.