US sanctions against Iran: Govt says no issues with oil supplies, sentiment hurting price

Some sanctions took effect from August 6, while those affecting the oil and banking sectors will start from November 4. Those sanctions would block banking channels, making payment for oil bought from Iran difficult as well as stop re-insurance cover to refineries processing such oil.

"There is no issue of availability of crude oil today. But due to geopolitical uncertainty in different parts of the world, there is a sentimental issue. That is the primary challenge," Pradhan told reporters on the sidelines of India Energy Forum here. "From day one, we are confident that there is no problem in sourcing of crude. There is plenty available in different parts of the world."

The sentiment in the market that going out of a big oil producer from the market may hamper supplies, is impacting prices and causing volatility in the market.

"Issue is not shortfall. Issue is sentiment," he said.

Oil prices hit a four-year high of USD 86.74 a barrel earlier this month as the market grapples with the expected loss of Iranian exports due to the US sanctions.

Rates have cooled to around USD 81 in hope that the US may extend deadline for imposing sanctions on Iran by a couple of months.

IHS Markit vice chairman Daniel Yergin, who was present along with Pradhan while addressing reporters, said oil markets have a sentiment problem and not a supply issue.

"Oil market is physically balanced but emotionally unbalanced because of uncertainty, because of geopolitical issues. That is what is impacting the price," he said.

Pradhan said oil cartel OPEC has to ensure market stability that is beneficial to both consuming and producing countries.

OPEC, he said, had in June decided to raise production by 1 million barrels per day. While Saudi Arabia and Russia have increased production, "according to our information some of the (OPEC) countries are lagging behind."

On Monday, officials in the government and oil companies said Indian firms like IOC have optional volumes built in their annual crude oil purchase contracts with suppliers like Saudi Arabia and Iraq that will be more than enough to make up for any shortfall in supplies from sanction-hit Iran.

India had contracted to import about 25 MT of crude oil from Iran in 2018-19, up from 22.6 MT imported in 2017-18.

Out of this, supplies in the first seven months, till October, have not been impacted. For the remainder, enough cushion is available to avert any supply disruption, they had said.

"When oil companies enter into annual term contracts for buying crude oil, there are two components mentioned - firm supplies and optional supplies. Firm volumes are the ones that oil companies commit to necessarily take and there is an optional volume on top of it which they can dip into if the need arises," a top official at a state-run refiner said.

"These optional volumes can be taken at any time of the year and would be more than sufficient to make up for any shortfall that may arise because of the US sanctions against Iran."

India, the world's third-biggest oil consumer, meets more than 80 per cent of its oil needs through imports. Iran is its third-largest supplier after Iraq and Saudi Arabia and meets about 10 per cent of the total needs.

Last week, Pradhan said Indian Oil Corp (IOC) and Mangalore Refinery and Petrochemicals (MRPL) have together placed orders for import of 1.25 MT of crude oil from Iran.