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India to buy more Saudi, Iraqi oil

New Delhi, July 25, 2011

India's immediate strategy to deal with the loss of crude from Iran in August is to buy more from Saudi Arabia and Iraq, while inventories and plant maintenance give refiners breathing space.

Iran has cut supply as it tries to put pressure on Indian refiners to settle $5 billion in debt for oil supplied, and to find a way to pay for future shipments.

The halt has given regional rival and US ally Saudi Arabia an opportunity to grab a bigger share of the market in Asia's third-largest oil consumer. If Saudi Arabia fills the gap, tension on oil policy between Riyadh and Tehran could worsen.

"For meeting immediate needs and even longer term, Saudi Arabia would be the main source," said Paul Tossetti ,  senior advisor for oil markets at PFC Energy.

"They have offered to supply extra crude to Asian refiners... Looking beyond 2011, Iraq production should see a major increase in late 2012 and that would be another opportunity."     

Iran-led opposition defeated a Saudi proposal for a coordinated supply rise at an Opec meeting in June. Saudi Arabia said it would boost supply anyway, a move Iran has criticised.      

Iran has cut sales of 400,000 barrels per day (bpd) of crude to India, near 12 percent of the nation's demand of 3.46 million bpd, because New Delhi has failed to find a way around US sanctions that make paying Tehran for oil difficult.

Indian refiners Bharat Petroleum, Hindustan Petroleum and Essar have contacted state oil firm Saudi Aramco to secure supplies to plug the gap in supply from Iran, an Aramco source said on Wednesday.     

Additional cargoes from Kuwait, the United Arab Emirates and possibly further afield, as well as inventories held by refiners in India should prevent any supply squeeze, analysts said.

"I don't think that the availability of crude is an issue." said Sushant Gupta, an analyst with Wood Mackenzie. "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."     

Most Indian refiners can process regional Middle East and West African grades, said Gupta. MRPL, HPCL, IOC, BPCL and Essar between them buy already about two-thirds of their oil from the Middle East.

Mangalore Refinery and Petrochemicals Ltd., Iran's biggest Indian buyer with around 150,000 bpd, was already in talks to boost supply from Saudi Arabia and Gulf ally the UAE.

The company had started looking for alternative suppliers even before Iran halted shipments to India this week as the dispute that rose in December over payment between New Delhi and Iran dragged on. MPRL struck its first ever supply deal with Kuwait earlier this year to buy 20,000 bpd.

HPCL plans to open talks to boost supply from Saudi Arabia, Kuwait, the UAE and Iraq, K. Murali, the company's head of refining, said on Wednesday.

Essar, too, has been busy bringing in supplies from other sources. It raised oil imports from Iraq five fold in the first six  months of the year and from the UAE by about 70 percent, according to refining data obtained by Reuters.

India and Iran have struggled since December to find ways for New Delhi to pay for imports, after India's central bank stopped payments through the Asian Clearing Union (ACU) mechanism. There is no ban against buying Iranian crude, but sanctions have made financing the deals difficult. - Reuters




Tags: Saudi Arabia | Oil | Iran | Iraq | refiners |

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