Published: Wed, October 10, 2018
Money | By Armando Alvarado

India expected to keep buying Iranian oil despite sanctions by US

India expected to keep buying Iranian oil despite sanctions by US

Petroleum Minister Dharmendra Pradhan on Monday said Indian companies will continue to buy Iranian oil in November despite the looming USA sanctions on that country.

Iranian crude exports, which reached a peak of some 2.5 million barrels after sanctions were lifted in 2016, have plunged by over 500,000 barrels a day and are expected to dive further when expanded sanctions on oil take effect next month.

The Indian orders have reportedly been placed by Indian Oil Corp (IOC) and Mangalore Refinery and Petrochemicals Ltd (MRPL).

Iran may indeed have not cut production yet to match the rate of decline in its exports, as the country appears to be storing more oil on ships as it did during sanctions that applied until the 2015 nuclear deal.

"India is continuing with its relationship with both its key energy partners Iran and the US", a second source said.

Trump administration officials told the Free Beacon in June they are "not granting waivers" to some countries importing Iranian oil, but walked that statement back late Monday when a USA official disclosed it is now actively working to grant "individual countries" waivers from the new oil sanctions.

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But Iran, OPEC's third-largest producer, has repeatedly said that its oil exports can not be reduced to zero because of high demand levels in the market and has blamed Trump for an oil price rally caused by imposing sanctions on Tehran. "Iran's oil can not be replaced by Saudi Arabia".

In the previous round of sanctions from 2012 to 2015, India continued to buy Iranian crude although it had to cut purchases significantly to protect its wider exposure to the USA financial system.

Although countries like Turkey, Russia, and China have indicated they will go ahead with their oil trade with Iran, the European Union will probably accede in a large measure, given the exposure of their companies to the USA banking system. China and India are the first and second biggest customers of Iranian oil, while Turkey is the biggest buyer of Iran's oil in Europe. An industry source who also tracks exports said October shipments so far were below 1 million bpd.

"We will be guided by our national interest", he said. But hedge funds have amassed a large bullish position in Brent crude, amounting to nearly 470 million barrels, betting prices will head even higher. In September, Iran exported 1.6 million bpd.

The escalating US-China trade war, and weakening currencies in major Asian oil importers such as India are all expected to cap rising oil prices as global economic and oil demand growth could suffer if Brent crude breaks above the $85-$90 band. The Indian basket represents the average of Oman, Dubai and Brent crude. Many BJP-ruled states have also cut the value-added tax (VAT) on fuel by an equivalent amount.

"In effect, the government has asked the OMCs to sell petrol and diesel at subsidized prices, for which they will not be reimbursed", the report said.

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