India should reduce or stop crude oil import from Iran: Moody's

Indian refiners will either have to significantly reduce or completely stop importing crude oil from Iran over the next month, increasing their dependence on other Middle Eastern suppliers like Saudi Arabia and Iraq, Moody's Investors Service said Thursday.

US President Donald Trump earlier this week in a speech to the United Nation's General Assembly reiterated sanctions on Iranian oil exports will take effect on November 5 and that the US is working with countries that import Iranian oil to cut their purchases substantially.

India is the second largest buyer of Iranian crude after China, accounting for about 30 per cent of total crude exports from the Persian Gulf nation during April-August 2018.

Indian refineries, which import over 80 per cent of their crude feedstock from overseas, sourced about 14 per cent of their imports from Iran.

"We expect Indian refiners will either have to significantly reduce or completely stop importing crude oil from Iran over the next month or so.

"As a result, Indian refiners will increase dependence on the remaining Middle Eastern crude oil suppliers (mainly Saudi Arabia and Iraq), aside from Iran," Moody's said.

Iranian crude is usually sold at a discount of up to USD 2-4 per barrel to other Middle Eastern crude oil grades.

Iran's national oil company, National Iranian Oil Company, also subsidises the freight costs for crude oil delivery and offers extended payment terms to buyers.

"Assuming a complete cessation of imports of Iranian crude and USD 3 per barrel negative impact on earnings because of that, on the barrels being substituted, we estimate total decline in earnings for Indian refiners to be USD 400-500 million, against combined EBITDA of about USD 10 billion for the 3 largest state-owned Indian refiners in 2017-18," it said. "Thus we expect the impact on the refiners' credit metrics to be limited."