Speaking at an event here, Pradhan said two of India’s state-owned companies had contracted for Iranian crude for November.
State refiners Indian Oil Corporation Ltd (IOC) and Mangalore Refinery and Petrochemicals Ltd (MRPL) have contracted 1.25 million tonnes of Iranian oil for import in November.
India, the world’s third-largest oil importer, is a major importer of Iranian oil. Of the 220.4 million metric tonnes (million MT) of crude oil imported by India in 2017-18, about 9.4% was from Iran.
President Donald Trump has pulled the US out of a historic 2015 accord with energy-rich Iran signed to curb the Islamic republic’s nuclear programme in return for ending sanctions. However, according to Alice G. Wells, principal deputy assistant secretary of state for South and Central Asia, the US has not taken any decision on sanctioning India for importing oil from Iran and investing in the Chabahar port.
Wells, who was in New Delhi earlier this month as part of the delegation accompanying US Secretary of State Mike Pompeo for the India-US “2+2” dialogue, said there was no “blanket waiver or country-specific waiver” from US sanctions on trading with or investing in Iran or buying arms from Russia. She said the sanctions that would come into force on 4 November were designed to bring Tehran to book and not to penalise India, which meets 83% of its crude oil requirements from outside.
Pradhan said a new world order was being established and added, “Is this not a recognition of India’s leadership?”
Increasing tensions between the US and Venezuela; the US demanding an end to all imports of Iranian oil by early November; and the rupee’s performance as Asia’s worst performing currency of the year have compounded the situation and put India in a difficult spot.
With US sanctions on Iran looming, Moody’s Investors Service had estimated a $500 million decline in earnings for Indian state-owned refiners, IOC, Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) on account of substituting crude oil imports from the Persian Gulf country.
Reeling from high oil prices, India has also reminded Saudi Arabia of the promise by the Organization of the Petroleum Exporting Countries (Opec) of increasing production by an additional 1 million barrels per day, said Pradhan.
Opec accounts for around 40% of the global production. The grouping’s June decision to increase production by around 1 million barrels per day (bpd), or around 1% of global supply, followed calls from the United States, China and India to help moderate prices.
Pradhan said that while speaking to Saudi Arabia’s energy minister Khalid A. Al-Falih two days ago he had reminded him of Opec’s June decision and added that perhaps the increase in oil productions had not taken place.
While Brent prices softened on Monday from $86 per barrel and was trading at $83.53 per barrel, traders worldwide are betting on crude oil prices to cross $100 yet again. International crude oil prices had reached a record high of $147 per barrel in July 2009.
The cost of the Indian basket of crude rose to $84.14 a barrel on 5 October, according to the Petroleum Planning and Analysis Cell. To this, taxes at the central and state levels are added, besides dealers’ commission, to arrive at the retail price. The Indian basket represents the average of Oman, Dubai and Brent crude.
On Monday, petrol and diesel were selling at Rs 82.03 per litre and Rs 73.82 per litre, respectively, in New Delhi. Also, subsidised domestic cooking gas prices have been increased by Rs 2.89 per 14.2 kg cylinder to Rs 502.40, an all-time high.
The government last week effected a Rs 2.50 per litre cut in prices of petrol and diesel to ease inflationary pressure and boost consumer confidence. Many BJP-ruled states have also cut the value-added tax (VAT) on fuel by an equivalent amount.
Moody’s Investors Service in a report on Monday said the government’s decision was credit negative for Indian state-owned oil marketing companies IOC, BPCL and HPCL. It added that the effective reversal of fuel price deregulation would also constrain future private sector investments in the sector.
“In effect, the government has asked the OMCs to sell petrol and diesel at subsidized prices, for which they will not be reimbursed,” the report said.
In the run-up to 2019 general elections, Fitch Ratings recently raised the spectre of return of state control on fuel pricing in India.
“The step taken by the government reverses the price deregulation of diesel and petrol and increases the likelihood that the government may ask upstream companies Oil and Natural Gas Corporation (Baa1 stable) and Oil India Limited (Baa2 stable) to share the fuel subsidy burden,” the report added.