Refiners seek Saudi help as Iran halts August supplies

Iran has upped the ante in an oil payments row with India and halted crude supplies in August, forcing refiners in the country to seek shipments from alternative suppliers including top exporter Saudi Arabia, according to sources.

Since December, India and Iran have struggled to find ways for New Delhi to pay for 400,000 barrels per day or 12% of its oil demand after the Reserve Bank of India halted a clearing mechanism under US pressure.

That move won praise from Washington, which is using sanctions in a bid to get Tehran to halt its nuclear programme.

Mangalore Refinery and Petrochemicals Ltd (MRPL), Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL), Hindustan petroleum Corp (HPCL) and Essar buy crude from Iran and their collective debt to the Islamic republic since the crisis broke out has risen to more than $5 billion.

None of the five refiners has received a crude supply plan from Iran for August loading cargoes, officials and executives at the companies said on condition of anonymity. Iran had sent refiners a letter on June 27 threatening to halt supplies and has followed through on its threat, they said.

An executive with Saudi Aramco said BPCL, HPCL and Essar approached the company after Iran said they will receive no supply in August. “BPCL, HPCL and Essar have told us that they have not received allocation (from Iran for August). They did not get a response from Iran and they want to secure supplies.”

A BPCL source said Iran refused to sell crude to the company in August because it could not pay. “So there will be no supplies from Iran in August, but we have arranged volumes from Saudi Arabia,” the source confirmed.

IOC and MRPL have so far not asked for additional Saudi oil.
MRPL is still hopeful it will get a late allocation from Iran, a company source said.

Iran is India’s second-biggest supplier and refiners had already turned to the world’s top exporter Saudi Arabia and other Middle East producers the United Arab Emirates, Kuwait and Iraq for extra barrels to replace those at stake.

Saudi Arabia said it would boost supply unilaterally to meet rising global demand after an OPEC meeting in June failed to agree to raise output, with opposition led by Iran.

MRPL had already flagged that Tehran supplies were vulnerable in the long term.

“Considering the enhanced level of sanctions against Iran in future, the non-resolution of the current payment crisis, the availability of Iranian crude may be difficult,” MRPL said in its annual report, adding supply may not continue indefinitely.

Tehran had previously tolerated unpaid shipments as the price it had to pay to defend its crude market share.

Tehran has already given an August crude supply plan to refiners in China, two Chinese buyers of Iranian crude said. Iran has so far not offered them additional August volumes.

US Treasury officials are working with India to end the impasse and a solution is in sight, a US official said on Wednesday as Secretary of State Hillary Clinton visited India.

But Indian firms can ill afford long-drawn uncertainty over supplies, analysts said.

“They have to resolve it. If not this month, at least in the next month,” said Sushant Gupta of consultant Wood Mackenzie.

“I don’t think that the availability of crude is an issue. There will be alternatives from the Middle East and West Africa. They have the flexibility to reschedule crude cargoes and have some inventories as well.”