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Processing of Iranian crude oil by Indian refiners, such as Mangalore Refinery & Petrochemicals Ltd, is likely to take a big hit if the Government does not take immediate steps to tackle the uncertainty surrounding continued insurance cover for the refineries.
The West, which has been targeting Tehran’s revenue sources, has restricted European and US companies from entering into deals in that country in almost every non-essential business. This includes insurance.
Though Indian insurance companies are not governed by sanctions placed by the US and the EU, they do depend on reinsurance from Western companies because of the high-risk nature of the business.
“The Indian refiners fear that once their contract with the Western insurers end in the next few months, they may not be able to renew it because of sanctions,” an industry source said.
This would mean that they would have to stop processing Iranian oil because of the higher financial risk
A senior Government official told Business Line that the Finance Ministry is looking into the issue and trying to work out a solution.
In fact, Indian refiners have also been dealing with insurance problems for shipping crude oil from Tehran and the Finance Ministry is also in talks with shipping insurance companies on the matter, the official added.
Cutting down imports
The domestic refiners have already cut down oil imports from Tehran and shipments from the country have been constantly declining.
Imports fell from 21.20 million tonnes (mt) in 2009-10, to 18.50 mt in 2010-11 and 18.11 mt in 2011-12. It is unlikely to exceed 11.5-12 mt this fiscal (2012-13) till the geo-political situation improves. MRPL has cut its sourcing from Iran by almost 50 per cent. MRPL, which was importing 7 mt per annum earlier, had brought imports down to 5 mt , and expects to close this fiscal with about 3.8 mt.
Essar Oil, which has been sourcing 5 mt from Iran, has cut imports by almost 15 per cent.
This uncertain situation is forcing the refiners to look for crude oil from other regions.
Payment for trade
Another issue which is troubling importers is the mode of payment, which is essentially in rupees now. However, the exporters are not affected as it is actually translating into more business for them.
Although the sanctions imposed by the UN on Iran for its alleged nuclear activities allow trading with the country for essentials such as food and oil, the US and the EU are targeting all banks that transfer payments to Iran in international currencies such as the euro and the dollar.
The Turkish Halkbank, which was being used by India to pay for more than half of its oil purchase from Iran estimated at an annual $11 billion, recently refused to transfer payments fearing US sanctions, leaving no option for Iran other than accepting all payments in rupees.
“The only way Iran can productively use the rupee payment it receives for oil is by using it for making payments for imports from India. That is why it is welcoming all business interests from India,” the official said.
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