Amid rising threat of disruption to the shipping channel of the Strait of Hormuz, India is likely to exercise 'full flexibility' in sourcing crude oil to ensure domestic demand is met, and the government will buy the cheapest oil available in the market, one senior government official told Moneycontrol on condition of anonymity, allaying concerns of any shortage.
India will continue to prioritise oil prices on landed basis while purchasing crude from the international market, the official said.
“There is enough (crude) oil in the market. India sources oil from many countries. Our import strategy remains to buy from wherever we get cheapest oil, on landed basis,” the official added.
India’s oil supply remains secure and is unlikely to be disrupted despite escalation between Iran and Israel, said the official. New Delhi is a major oil importer dependent on imports for nearly 90 percent of its requirement.
As Tehran threatens to shut the Strait of Hormuz in retaliation to US’ attack on Iranian nuclear facilities, freight rates in the Middle East Gulf (MEG) have spiked, particularly for VLCCs (Very Large Crude Carriers). Refinery executives had told Moneycontrol on June 16 that shipping costs for crude coming through the Strait of Hormuz route has already risen by 8-9 percent.
The official, however, sees higher shipping costs prevailing only during the ongoing Iran-Israel conflict, and are confideny of Indian refiners’ ability to navigate without impacting the companies’ longer term operations.
“I am not worried about (shipping) costs currently. I am looking at supplies, which remains intact. The crisis would last for a quarter, maximum. The companies are in the business for longer,” the official added.
Moneycontrol has reported earlier that India’s oil refiners are sourcing more oil from Russia and the US in June to mitigate supply-related risks in the Middle East, with imports from Saudi Arabia and Iraq having fallen this month.
For India’s crude oil shipments coming from the Middle East, the official assured that the supplies would reach India even if the Strait of Hormuz were to be blocked by Tehran, pointing there are other routes for shipping oil.
The official also added that India will adhere to the crude oil term deals. Indian refiners have crude term contracts with Saudi Arabia, UAE, Iraq, Kuwait, Oman and Qatar. The ratio of term and spot supply to India stands at 60:40 currently, according to data from global trade analytics firm Kpler.
“The suppliers will do everything to ship oil to the market. They may take longer routes but will reach India. The market has learnt to live with the geopolitical tensions,” the official said.
Data from Kpler - a website providing energy market insights - shows that India imports around 40 percent of crude oil from Russia, 40 percent from the Middle East region including Saudi Arabia, Iraq, UAE, Kuwait, among others. Remaining oil supply comes from the US, West African nations and some other suppliers.
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