India keen to buy more oil from sanction-free Iran

With the removal of economic sanctions against Iran by the West, India is open to buying more crude oil from the country if it gets a good deal and also intensify bilateral trade ties.

“If we get cheaper prices and quicker access, we can obviously buy more (oil),” Commerce Secretary Rita Teaotia said answering a question at a press conference on India’s trade data on Monday.

An official of the Ministry of Petroleum & Natural Gas said, a new long-term contract with Iran will depend on the price as a well as terms and conditions. “Whosoever offers the best terms and conditions, we will go with them. Each country is wooing India. Saudi Arabia is already doing it,” he said.

With the removal of sanctions, there will be no compulsion on India to trade in rupee with Iran, as it had been doing for the past two years.

However, the rupee payment mechanism is likely to continue for some time as Iran has a substantial balance in its rupee account which it has to use up, Teaotia said.

According to estimates, Iran still holds a balance of about $3 billion in Indian rupees.

New Delhi’s exports to Iran got a boost when the two countries established the rupee payment mechanism to side-step Western sanctions. Under the mechanism, Iran received payment for its oil sold to India partly in the Indian currency which was subsequently used to settle payments for Iranian imports of Indian commodities such as rice and pharmaceuticals.

On whether the lifting of sanctions, which were imposed by the US and the EU for Iran’s alleged nuclear activities, would lead to more business with the country, the Commerce Secretary said that India had a robust rupee trade with Iran “which we will continue to build on’’.

According to a report by ICRA, with the lifting of sanctions, 38 million barrels of oil, which are in Iran’s floating oil reserves in the Persian Gulf, will be added to the international markets besides an additional production of 500,000 barrels of oil per day (bpd) over and above its existing exports of 1 million barrels per day.

“After imposition of sanctions, dozens of Iran’s oil wells were mothballed and bringing them back to production would involve fresh investment. Accordingly it is estimated that over and above the aforementioned 1.5 million barrels of oil per day, an additional 250,000-500,000 bpd could enter the markets in the latter half of 2016,” the report said.

ICRA said that with the lifting of sanctions, the government could consider reviving the fertiliser production plants in Iran with the latter providing gas under long-term contracts.

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