x Abu Dhabi, UAEThursday 27 July 2017

India faces challenge in weaning itself from Iranian oil

The United States has been trying to coax India to slash its crude imports from Iran, to build pressure on Iran¿s leaders to give up its nuclear programme.

NEW DELHI // As India begins to wean itself off Iranian oil imports, under pressure from the United States, it will need to redraw its energy map and look elsewhere to satisfy its growing appetite for petroleum.

Hard on the heels of a visit by Hillary Clinton, the secretary of state, the United States sent Carlos Pascual, its special envoy on energy, to India to push its agenda of convincing India to give up Iranian oil.

Mr Pascual's four-day visit concluded yesterday.

Tellingly, halfway through Mr Pascual's visit, India's junior minister for petroleum, RPN Singh, announced that the country would slash its dependence on Iranian oil by 11 per cent over the coming fiscal year.

In a written reply to a question by a member of the Rajya Sabha, the upper house of India's parliament, Mr Singh said that, in 2010-11 and 2011-12 respectively, India had imported 18.50 million tonnes and 17.44 million tonnes of crude oil from Iran.

At its recent January 2012 peak of 550,000 barrels per day, this made India Iran's largest customer for oil, earning Iran revenues of about US$11 billion (Dh40.4bn) per year.

But, according to a new decision by the government, "the target fixed for import of crude oil from Iran for 2012-13 is about 15.5 million tonnes", Mr Singh said.

Deepak Mahurkar, the head of the oil and gas practice at PricewaterhouseCoopers in India, called the cut "drastic" and said that India would find it difficult to manage it in the short term.

"But in the long term, India will be able to adjust. It won't be a challenge," Mr Mahurkar said. "To put into place contracts and supply chains [with other suppliers] would take months. But it doesn't seem implausible that India cuts Iranian imports even more."

The United States has been trying to coax India to slash its crude imports from Iran, to build pressure on Iran's leaders to give up its nuclear programme.

Last week, during her visit to India, Mrs Clinton had told an audience in Kolkata that "at this moment in time, the principal threat is a nuclear-armed Iran".

"We need India to be part of the international effort".

In response, India's public stance has been to resist America's persuasion. Addressing a press conference jointly with Mrs Clinton, the Indian external affairs minister SM Krishna, early last week, affirmed that "ties of culture and religion" bound India and Iran. "Iran is an important source of oil for us," Mr Krishna said at the time.

But Sushant K Singh, the head of the national security programme at a Chennai-based think tank called the Takshashila Institution, believes that India may have been more amenable to Mrs Clinton's overtures behind closed doors.

"What India would have told her is, 'Don't make us look weak publicly. We don't want to look as if we're doing it under pressure'," Mr Singh said. India's most recent cut in Iranian imports would seem to confirm Mr Singh's assertion.

In the Rajya Sabha, RPN Singh, the junior minister for petroleum, denied that the move was linked to American pressure and claimed, instead, that it was part of India's larger energy strategy.

"To reduce its dependence on any particular region of the world, India has been consciously trying to diversify its sources of crude oil imports to strengthen the country's energy security," he said.

In total, from 30 countries, India imports between 160 and 170 million tonnes of crude oil, which comprises the majority - about 79 per cent - of its total demand for oil. The remainder is produced by domestic oilfields.

India's appetite for petroleum, according to figures from PricewaterhouseCoopers, is growing at 4-5 per cent per year.

Last December, the petroleum minister S Jaipal Reddy, in a statement to the Lok Sabha, the lower house of parliament, said that India had extracted 37.68 million tonnes of crude from its oilfields in 2010-11. Mr Reddy projected that India would scale up its oil production, increasing its output by 21 per cent over the 2010-11 figure to 45.57 million tonnes by 2013-14.

There was "no question", Mr Mahurkar said, about domestic production's ability to take up the slack from total cuts in Iranian imports. "That 21 per cent increase in output will be targeted and the challenges attached will be dealt with. The rise will not suffice to replace iranian crude, though."

But cutting back Iranian imports "will not leave India in a situation where we cannot manage", said BN Bankapur, the former director of refineries at the state-owned Indian Oil Corporation.

"The imports cut from Iran can be made up from plenty of other countries," Mr Bankapur said, citing Saudi Arabia - India's biggest supplier of imported oil - as well as Kuwait and Iraq as the chief alternative possibilities. "Iran has high-sulphur crude, so its crude character is not very different from other Middle Eastern crudes. In any case, Indian refineries are capable of processing most types of crude now."

Mr Pascual, during his visit, also entered into talks with India for the US to supply liquefied shale gas as an alternate source of energy.

But in the short term, liquefied gas was not an alternative, Mr Mahurkar said. "If the us has extended [natural gas as] an olive branch, it is good news from the perspective of meeting rising energy demands," he said. "Substitution of liquid crude by natural gas is good and possible, though not in the short term. Such strategic displacement will need years."