Govt cuts oil import plans from Iran by a quarter over gas field row

India plans to order about a quarter less Iranian crude oil than it bought last year, people familiar with the matter said, as state refiners cut term purchase deals over a row between New Delhi and Tehran on the development of a natural gas field.

The drop in volumes follows India's threat to order state refiners - Hindustan Petroleum, Bharat Petroleum, Mangalore Refinery and Petrochemicals Ltd, and Indian Oil Corp - to reduce purchases from Iran if an Indian consortium is not awarded the rights to develop Iran's huge Farzad B natural gas field.

The volume cuts would put India's imports of Iranian crude for this fiscal year at 370,000 barrels per day (bpd), according to the sources with knowledge of the planned deals.

India is Iran's top oil client after China, and last year imported about 510,000 bpd of crude from the country, according to shipping data in Thomson Reuters Eikon.

The reduced 2017/2018 imports include 199,000 bpd by state refiners, a decline of about a third from last year, the sources said. Private refiners Essar and HPCL-Mittal Energy Ltd (HMEL) have renewed last year's term contracts to buy 120,000 bpd and 20,000 bpd, respectively, they said.

Most of the state refiners did not respond to queries on the matter, while Essar Oil, MRPL and HMEL declined comment.

India's oil ministry also said it had no immediate comment.

Analysts said apart from the gas-field row, India is also taking advantage of a narrow price spread between European oil benchmark Brent and Middle East price-setter Dubai crude, which makes it attractive to bring more oil from Europe into Asia.

"Brent-related crudes are cheaper and sweeter than medium to heavy grades from Middle East," said Ehsan ul Haq of KBC Energy Economics.

Also, Russia's Rosneft may start bringing more non-Iranian crude, likely from Venezuela, to India after buying Essar Oil's Vadinar refinery.

Not all of India's refiners plan to scale back orders from Iran, though. Private refiner Reliance Industries signed its first Iranian deal in seven years to buy 30,000 bpd of heavy Forozan crude oil, one of the sources said.

India's overall crude demand is around 4.6 million bpd, third highest in the world behind the United States and China. It was one of the few countries that continued to deal with Iran despite international sanctions that were in place until 2016.