Saudi Aramco, the world’s largest oil producer has offered to increase oil supply to India as the imports from Iran come to halt. The state owned company of Saudi Arabia said that it could supply additional 200,000 barrels per day (bpd) to India.
Earlier, the United States had asked India to support their sanctions over Iran and reduce these imports to zero in the six months during which sanctions on Iran were effective, starting from November 5th, 2018. The US granted a waiver to India along with 7 other countries for the next six month and waiver ended in the first week of May. But, the problem is that Iran was a major source of India’s crude imports accounting for 10 percent of the total.
Iran is the third largest oil exporter to India after Iraq and Saudi Arabia. More than 80 percent of India’s demand is met through imports which account almost a quarter of India’s total import. The country is still getting oil from Iran on pre-negotiated terms but the US sanctions will come into full effect from June and India will not be able to import. The sanctions on Iran and Venezuela, third and fourth largest exporters to India, would hit the refineries if other suppliers like Saudi Arabia, Iraq, and UAE do not increase the supply.
Saudi Arabia and Iran are arch-rivals and therefore the Kingdom is fully supporting American sanctions on Iran. United States has assured India that if it follows the sanctions, the needs will be met through US shale oil and increased supply from friendly countries. However, India imports its oil from Iran on very friendly terms and Iran gives a 60-day credit to major Indian importers including Indian Oil Corporation, Mangalore Refinery and Petrochemicals (MRPL) and Nayara Energy while Saudi Arabia charges ‘Asia premium’ to countries like India and China. India imported 207.3 mt crude oil in FY19 with Iraq (46.61 mt) being the top supplier followed by Saudi Arabia (40.33 mt), Iran (23.9 mt) UAE (17.49 mt) and Venezuela (17.32 mt). These imports cost 114 billion dollars of foreign exchange in the last fiscal year.
A few days back, the US had hinted that it would supply oil and gas on short notice if there is a shortage. American shale oil production is expanding at an exponential rate. The forecasters expected an increase of 1 million barrels per day but the industry registered a growth of 1.53 million barrels per day which is almost 50 percent higher than the expectations. To put it in perspective, the addition in US shale oil capacity is almost equal to half of Iran’s total output for a year. The US emerged as the top crude oil producer with 12 million barrels per day, ahead of Russia and Saudi Arabia. In 2018, the United States became a net oil exporter for the first time in 75 years. The majority of US oil is flowing to Asian countries like China, India, Taiwan, South Korea, and Japan.
In the year 2018, India imported oil and gas worth 3 billion dollars from the United States. The Trump administration had complained about the huge trade deficit with India since assuming power, the reduction in the deficit will bring both countries closer as American complaints are being addressed. The crude imports from the United States will help the country in meeting the shortage created a due ban on Iranian imports as well as reduce the trade deficit with India. Therefore the United States will fill the gap created by Iran and India’s interest would not be hurt even after the import ban.