The development was not just a major economic shift; it also changed the Iran-Saudi political frictions from mutterings to real action.
Iran had threatened to cut off Indian oil supplies for non-payment. But few analysts believed Iran would actually do that—especially since Saudi officials had been publicly smacking their lips at the thought of taking away a share of Iran’s oil market by supplanting it.
The key question now is whether Saudi Arabia’s swift action will prompt Iran to restore its shipments to India. The next question is whether the Indians will go back to Iran or stick with Saudi Arabia. A key issue may well be whether Saudi Arabia can supply crude that can easily be adapted to Indian refineries.
Here is what has happened this past week.
India’s five refineries that have been buying Iranian crude went to Iran last week to sign up for deliveries in August totaling about 12 million barrels. The National Iranian Oil Co. (NIOC) ignored all five.
The Indians then went to the Saudi Aramco. As of Tuesday, three of the five had announced signing contracts with Saudi Aramco for 3 million barrels in August—a quarter of Iran’s normal monthly sales. It wasn’t made clear if the Saudis did not have more crude available in August or if only a partial month contract had been signed at this point.
Reuters quoted a source in India as saying the crude would be a mix of Arab Light, Arab Medium and Arab Heavy, apparently an effort to design a mix most compatible with Indian refineries.
The refiners who have signed contracts as of Tuesday were named as Hindustan Petroleum Corp. (HPCL), Bharat Petroleum Corp. (BPCL) and Essar Oil. The Mangalore Refinery—the biggest Indian importer of Iranian oil—was described as in talks with Saudi Aramco. Officials with the Indian Oil Company (IOC) have not said anything.
Iran normally provides India with about 12 percent of its oil needs. Before this, Saudi Arabia has sold India about 15 percent of India’s imports, so the Saudis are not outsiders to the Indian market.
In June, Iran led opposition within OPEC to Saudi Arabia’s desire to raise OPEC’s production quotas and supply the world with more oil. It was easy for Iran to object to that since Iran is now producing all it is capable of pumping, so a higher quota means nothing for Iran.
Saudi Arabia was angry, however, and announced it was prepared to pump more if buyers appeared at its doorstep. India is now at its doorstep.
Reuters said the Indian refiners are also talking to Kuwait, Iraq and the UAE about buying more crude.
In Tehran, the Fars news agency said contracts for August deliveries to India had not been issued because of India’s nonpayment for past deliveries. Payments halted in December when the Reserve Bank of India, India’s central bank, refused to process any more payments to Iran for fear of getting tangled up in American banking restrictions.
India was able to make one payment later through a German bank before French and American pressure led Germany to close that door.
Iranian Central Bank Governor Mahmud Bahmani said India owes $5 billion, although many analysts believe the total is higher. Iran has never suggested that India was ducking payment, so it wasn’t clear why it halted sales now. There was speculation that ultra-rightists who suspect the worst of all foreigners had squawked loudly about the arrears and pressured the Oil Ministry to cut off India.
