India-Iran Relations on Crude Oil Supply

IAS Prelims 2023

Iran is India’s third biggest oil supplier, used to give a 90—day credit period to refiners like Indian Oil Corp (IOC) and Mangalore Refinery and Petrochemicals Ltd (MRPL) to pay for the oil they would buy from it.

But now it has reduced this to 60 days, essentially means that IOC and MRPL would have to pay for the oil they buy from Iran in 60 days instead of previous liberal term of 90 days.

Iran oil sale terms were the most attractive for Indian refiners. Besides a liberal credit period, it also shipped the oil to India for a nominal 20 per cent of normal ocean freight.

Other Middle-East sellers offer not more than 15-day credit period.

National Iranian Oil Co (NIOC) has also decided to cut the discount it offers to Indian buyers on freight from 80 per cent to about 60 per cent.

IOC and MRPL — largest state buyers of Iranian crude — will cut imports from Tehran to 4 million tonnes in 2017-18 from 5 million tonnes in the previous year.

Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) will cut oil imports from Iran by 0.5 million tonnes each to 1.5 million tonnes as New Delhi built pressure on Tehran to award the Farzad—B field to its discoverer, ONGC Videsh Ltd.

Iran has deterred in awarding rights to develop the 12.5 trillion cubic feet discovery OVL had made 10 years back and now New Delhi is using its oil imports as a bargaining tool to get Tehran to agree.

India is Iran’s second biggest oil buyer after China and was among a few which had continued to import crude despite Western sanctions against Tehran.

Farzad—B was discovered by OVL in the Farsi block about 10 years ago. The project has so far cost the OVL—led consortium, which also includes Oil India and IOC, over USD 80 million.