Indian refiners will look to tap Iranian oil following waiver, but hurdles remain

Indian refiners will be looking to purchase a few cargoes of Iranian oil on water following the recent sanctions waiver by Washington and ongoing diplomacy between New Delhi and Tehran, but limited time and availability, as well as competition among buyers, may narrow the window of opportunity to buy large volumes, trade sources, refiners, and analysts said March 23.

Once a favorite among Indian refiners, India last received Iranian oil in May 2019, according to S&P Global Commodities at Sea data.

In November 2018, the US reimposed sanctions targeting Iran's oil exports, but the US granted waivers to China and a few other buyers. The waivers allowed these countries to continue purchasing oil from Iran for 180 days without penalty.

India used to buy 518,000 b/d of Iranian oil in 2018, which slowed to 268,000 b/d between January-May 2019 during the sanctions waiver period, CAS data showed. Thereafter, there were no further imports. The key grades that Indian refiners used to purchase are Iran light and Iran heavy crudes.

"Certainly, Indian refiners will look to capture this opportunity. It alleviates the Strait of Hormuz risk. Besides, there may be some floating cargoes to reach quickly. In my opinion, it will be a good move by the government, as the world now sees India as a balancing factor to mediate for hopefully ending the war," said DLN Sastri, former director of refining at the Federation of Indian Petroleum Industry.

Indian Prime Minister Narendra Modi said over the weekend that he spoke with Iranian President Masoud Pezeshkian and condemned the attacks on the region's critical infrastructure, which threatens regional stability and disrupts global supply chains. He reiterated the importance of safeguarding freedom of navigation and ensuring that shipping lanes remain open and secure.

Iranian oil on water

"India has a chance to pick up some of the Iranian oil that's on water to fill the vacuum caused by disruption of flows at the Strait of Hormuz. But following the announcement of the US waiver, there will be more competition from Chinese refiners to take some of those cargoes," said Yen Ling Song, associate director for liquids at CAS.

The US has lifted sanctions on some Iranian oil, issuing a general 30-day license to allow the purchase of sanctioned Iranian crude already loaded on vessels -- including those sanctioned -- until April 19, according to a March 20 notice from the US Department of the Treasury.

According to CAS data, an estimated 95 million barrels of identified Iranian crude oil were on water as of March 22. Based on the current and last-known positions of vessels, around 51 million barrels of those volumes could be sold to India, while the remaining volumes are better suited for buyers in China and Southeast Asia.

"If Iranian oil is available, Indian refiners will love to take those cargoes. However, given a shorter window for the stranded barrels, some of the stranded barrels could go to China and Europe," B. Anand, industry expert and former CEO of Nayara Energy said.

According to S&P Global Energy, the removal of US sanctions on Iranian crude is neutral for Dated Brent prices.

Crude oil futures rose in midmorning trading in Asia on March 23 as the war in the Middle East persisted, with US President Donald Trump warning of further escalation if Iran does not fully open the Strait of Hormuz. At 11:12 am Singapore time (0312 GMT), the ICE May Brent futures contract increased 72 cents/b (0.64%) from the previous close to $112.91/b, while the NYMEX May light sweet crude contract gained 81 cents/b (0.82%) to $99.04/b.

Over the weekend, Trump said that if Iran does not open the Strait of Hormuz within 48 hours, the US would hit and "obliterate" various power plants. In response, Iran has said the strait would be "completely closed" if its energy infrastructure were attacked.

LPG a bigger headache

US President Donald Trump, in a post on his social media network Truth Social on March 21, said that the US military would "obliterate" Iranian power plants if Tehran does not fully reopen the Strait of Hormuz within 48 hours.

"There are still too many risks associated with energy flows from that region. India will look at some Iranian crude for sure, but the bigger headache for the government now is LPG," said one Indian refining source.

A petroleum ministry statement said over the weekend that all refineries were operating at high capacity, with adequate crude inventories in place. The country is also maintaining sufficient stocks of petrol and diesel. Domestic LPG Production from refineries had been maximized.

"Supply of LPG is still a concern in view of prevailing geopolitical situation," it said. The government also reiterated that public should not resort to panic buying of transport fuels, as adequate stocks of petrol and diesel were available and supplies were being replenished regularly.

Modi chaired a cabinet meeting on March 22 to review the situation and ongoing and proposed mitigating measures in the context of the ongoing West Asia Conflict.

"The ongoing conflict in West Asia will have significant short-, medium- and long-term impact on the global economy and its effect on India were assessed and countermeasures, both immediate and long-term, were discussed," a separate statement from the prime minister's office said.