West Asia tensions stall India's plans to import crude oil from Iran

Iran had been India's third-largest source of crude oil until 2019 when the US imposed fresh sanctions

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The latest flashpoint in West Asia has derailed India’s preliminary plans to resume crude oil imports from Iran, officials said.

In January, officials of the Ministry of Petroleum and Natural Gas had told Business Standard that the government had been studying proposals for the same, given that India was trying to expand sources of imports.

“We are always monitoring the situation when it comes to crude flows. There had been proposals to resume crude oil imports from Iran. But given the current state of affairs, that plan has now been put aside,” a Petroleum Ministry official said on Monday.

India has so far refrained from purchasing crude oil from any country facing global sanctions. The government considered importing Venezuelan oil once the US lifted sanctions on the South American nation.

The issue may have been discussed during recent bilateral meetings during External Affairs Minister S Jaishankar’s visit to Iran in January.

New partnerships  

One of the motivations behind the move was that shipments from Iran would be better shielded from regional instability. “Shipments from Iran take place through the Persian Gulf and Gulf of Oman, where the Houthi militias have limited presence,” an official said. Given that the Houthis are also allies of the Iranian regime, they were also not expected to go against trade deemed important by Tehran.

After more than a year of securing major shipments of Russian crude, India is increasingly looking to re-establish supplies from its traditional partners in West Asia. As of January, Iraq and Saudi Arabia were the second and third-largest sources of crude for India according to official data. The plan to test whether imports from Iran can begin was part of this larger effort, another official said.

Yet, imports from Russia have increasingly faced tighter restrictions, due to the US imposing fresh sanctions against Russia’s prominent tanker group, Sovcomflot, in February, and facing growing challenges in processing payments.

The discounts received by India had also come down to their lowest since the invasion of Ukraine in late-2023 to $3-4 per barrel.

Bypassing sanctions

Iran was the third-largest source of crude oil supplier for India till 2018-19, when imports had topped at $12.1 billion. In June 2019, the US Presidential administration under Donald Trump placed fresh sanctions on the country due to its nuclear programme. With Washington removing an exception for countries like India to source oil from Iran, the trade was cut off from accessing US dollars.

As a result, Iran went from becoming the ninth largest crude oil exporter in 2018 to the 71st as of 2021, OPEC figures show.

While Indian refiners are yet to negotiate spot purchases from the country, Iranian crude is increasingly being offered by traders under the garb of Malaysian oil, Business Standard has earlier reported.

Crude oil currently makes up a staggering per cent of Iranian exports, according to the Atlas of Economic Complexity, a repository of trade data maintained by Harvard University. In the absence of buyers, an increasing share of Iranian crude has diverted towards China, feeding nearly 10 per cent of China’s gigantic crude requirements, Reuters has reported. 

Casting a shadow

> Shipments from Iran better shielded from regional instability

> After more than a year of securing major shipments of Russian crude, India looking to re-establish supplies from West Asia

> Indian refiners yet to negotiate spot purchases from the country

> However, Iranian crude increasingly being offered by traders under the garb of Malaysian oil