India may cut oil imports from Iran as Tehran dithers on promises

India's crude imports from Iran are likely to fall by nearly 25 per cent after Iran decided to reduce credit period for Indian importers and lower the discount on freight rates amidst an ongoing dispute over development of the Farzad-B gas field.

Iran, which used to give a 90-day credit period to Indian importers like Indian Oil Corp (IOC) and Mangalore Refinery and Petrochemicals Ltd (MRPL) for the oil they buy from it, has now reduced this to 60 days.

National Iranian Oil Co (NIOC) has also decided to cut the discount it offers to Indian buyers on freight from 80 per cent to about 60 per cent.

The decision, which comes amidst Iran's decision to delay the proposed award of development rights of the Farzad-B gas field to India's ONGC Videsh Ltd (OVL) has complicated the issue.

A Reuters reports said India is planning to cut crude oil imports from Iran to 370,000 barrels per day (bpd), from the current 510,000 barrels per day (bpd).

State-run oil refiners IOC and MRPL will limit imports from Tehran to 4 million tonnes in 2017-18 from 5 million tonnes in the previous year, according to PTI report published in April.

Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) will cut oil imports from Iran by 0.5 million tonnes each to 1.5 million tonnes.

Besides the changes in the terms of oil exports to India, Tehran has dithered in the award of development rights of the 12.5 trillion cubic feet Farzad-B gas field that OVL had discovered 10 years ago.

India is Iran's second biggest oil buyer after China and was among a few which had continued to import crude despite Western sanctions on Tehran.

Farzad-B was discovered by an OVL-led consortium in the Farsi block in 2008. It has an in-place gas reserve of 21.7 tcf, of which 12.5 tcf is recoverable. The project has so far cost the OVL-led consortium (which also includes Oil India and IOC) over $80 million.

Iran, which came out of Western sanction last year, is now playing hardball over award of rights to develop Farzad-B gas field in the Persian Gulf to OVL, the overseas arm of state-owned Oil and Natural Gas Corp (ONGC).

OVL has submitted a revised master development plan of over $5 billion for developing the field.

The new plan, filed with Iranian Offshore Oil Company (IOOC), excludes liquefaction facilities to turn the gas into LNG for ease of shipping to importing countries like India, reports said.

The two nations were initially targeting concluding a deal on Farzad-B field development by November 2016 but later mutually agreed to push the timeline to February 2017.

Iranian Oil Minister Bijan Zangeneh had last month dismissed the threat of cutting imports, saying, "We cannot enter deals under threats."

"Using language of threats is not appropriate," Zangeneh was quoted as saying by Iranian news agency Irna. "There are a lot of customers for Iranian oil and their demand surpasses our export capacity."

However, not all of India's refiners plan to scale back orders from Iran, though. Private refiner Reliance Industries signed its first Iranian deal in seven years to buy 30,000 bpd of heavy Forozan crude oil, one of the sources said.

Analysts also say that India is also taking advantage of a narrow price spread between European oil benchmark Brent and Middle East price-setter Dubai crude, which makes it attractive to bring more oil from Europe into Asia.

Also, Brent-related crudes are cheaper and sweeter than medium to heavy grades from Middle East, according to analysts.

Also, Russia's Rosneft may start bringing more non-Iranian crude, likely from Venezuela, to India after buying Essar Oil's Vadinar refinery.

India, the third-largest oil consumer in the world after the United States and China, needs around 4.6 million bpd of crude annually.