Saudis step in as Iranian oil dries up

Saudi Arabia has agreed to sell 3 million barrels of additional crude oil to India next month to make up for supply cut by Iran over unpaid bills, touching $7 billion. Saudi Aramco, the national oil firm of Saudi Arabia, will supply one million barrels each to Essar Oil, Bharat Petroleum
and Hindustan Petroleum in August while Mangalore Refinery, too, is in talks to contract similar volumes, officials said on Tuesday.

Iran, which had towards the end of June warned of stopping exports to India unless dues are cleared, has not informed refiners of crude shipments for the month of August.

The additional supplies committed by Saudi Arabia is roughly one-third of what India imports from Iran, officials said, adding that more crude was being contracted from the UAE, Iraq and Kuwait as well as Latin America. Oil exports from Iran make up for about 12% of India’s oil needs.

Refiners have not been able to clear payments for oil they buy from Iran after the Reserve Bank of India (RBI), which was acting under US pressure, halted on December 23 the use of a clearing mechanism run by regional central banks.

The outstanding amount has now topped $7 billion and Iran, which has till now been selling some 400,000 barrels per day (bpd) of crude oil in credit all this while. Iran wants a payment mechanism to be put in place before more oil can be shipped.

Officials said BPCL had signed up for import of 1 million tonnes from Iran this year. The supplies were to start in August, but uncertainty over payments has meant that it will not get any crude.

“Iran has been a very generous supplier. No one else in the world sells such huge volumes on credit without any guarantee but Iran has been doing so thus far. But we have a problem at hand and we can understand Iranian frustration,” an official said.

US pressure and UN sanctions against Iran over its nuclear programme have made banks unwilling to transfer payments for oil that Indian refiners import.Further, Mangalore Refinery & Petrochemicals Ltd (MRPL), India’s biggest buyer of Iranian crude at 142,000 bpd, is talking with Saudi Aramco and Abu Dhabi National Oil Co for supplies.

Source: Press Trust Of India
New Delhi, July 27, 2011