India’s Refiners Take Guarded Approach To US-Approved Iranian Crude

State-owned refiners in India are not purchasing Iranian crude and fuel shipments yet, despite the US granting a temporary waiver permitting limited transactions, because uncertainty about payments, shipping and insuring deals remains in the way of deal viability.

This reserved position is despite the fact that India still requires more supply of crude, which highlights the logistical problem of having to engage in trade with Iran after years of sanctions.

What Has The US Allowed?

The US has issued its third waiver permitting purchases of restricted oil, including Iranian cargoes that are already on the water. The waiver provides a one-month window, aimed at easing global oil prices by increasing supply.

The one-month grace period has prompted representatives of the National Iranian Oil Company and intermediaries to approach large Asian buyers, including India. However, refiners have largely remained cautious.

Similar concerns have been flagged in China, where state-owned China Petroleum & Chemical Corp. (Sinopec) indicated it would avoid Iranian cargoes, citing the limited validity of the waiver, which leaves a narrow window for execution and delivery.

Why Are Indian Refiners Hesitating?

Iranian suppliers and intermediaries have approached Indian refiners with offers of crude oil and liquefied petroleum gas (LPG), a fuel that remains in high demand domestically.

Despite the waiver, refiners have not moved ahead with purchases due to multiple operational and regulatory challenges.

Among the critical issues are the uncertainties regarding payment, currency, insurance and logistics in terms of shipping. The refiners also lack confidence in whether the vessels that are transporting Iranian oil would be accepted at the Indian ports.

The short-lived one-month validity of the waiver has also contributed to the warning that it might not hold up to doing transactions and deliveries.

In comparison, India had been faster in importing Russian crude under previous waivers, with existing trade and logistics and payment structures.

The nation was a significant purchaser of Russian oil until the US pressure grew last year, compelling refiners to diversify their sourcing. The lack of such infrastructure, as in the case of Iran, has added to the current reluctance.

How Important Was Iran For India Earlier?

At one point, Iran used to be a major supplier to India with up to 11.5% of the total imports of crude oil.

Nevertheless, the purchases were suspended in 2019 because of US sanctions, and refiners have been wary of them since that time because of compliance risk.

The vast distance separating the trade has implied that the crucial structures surrounding logistics, payments and insurance are no longer present.

This forces refiners to perform new due diligence prior to engaging in any transaction, and slows the process of negotiating prices and delivery schedules.

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What Does This Mean For Investors?

For those putting their money in, the present situation suggests that the advantages of diversifying oil supplies with Iranian crude are probably off the table for now, even with the short-lived waiver in place.

Refiners' reluctance seems more about the potential pitfalls of implementation than a lack of demand. This implies that businesses might stick with their current crude oil sources, even if it means paying more. Consequently, we could see sustained volatility in input costs and heightened sensitivity to profit margins in the short run.

Investors need to keep a sharp eye on the government's position, how long the regulatory easing will last, and the direction crude prices are heading worldwide. A shift in any of these areas could swiftly change sourcing strategies and, in turn, affect the bottom line for oil marketing and refining firms.

Sources:

Economic Times

Bloomberg