USA offers help to India with replacing Iran oil supply

Posted on February 24, 2012

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The U.S. government has offered to help India get alternative supplies for Iranian crude as it looks to squeeze the Persian Gulf producer’s oil revenue, according to three people with knowledge of the matter, Bloomberg reported.

The U.S. may help broker deals with suppliers such as Iraq and Saudi Arabia, the people said, declining to be identified because the information is confidential. Saudi Arabia has already offered to replace Iranian oil supplies if needed, two of the people said.

The assurance follows Iran’s offer to sell extra crude to India as the Persian Gulf nation, OPEC’s second-biggest producer, cuts supplies to some European nations in response to sanctions imposed over its nuclear program.

The U.S. and European Union tightened sanctions on Iran last month, restricting trade and financial transactions. They say the program is a cover for developing atomic weapons. Iran denies the accusation.

The international measures have made it difficult for India and Iran to preserve $9.5 billion in annual crude trade, after the Reserve Bank of India dismantled a mechanism used to settle payments in euros and dollars in December 2010.

Transactions are currently routed through Turkiye Halk Bankasi AS, based in Ankara, which has told Indian refiners it may no longer be able to act as an intermediary, four people with knowledge of the matter said Jan. 10.

The Turkish lender will stop processing transactions for supplies into Turkish refineries from July, an official at Tupras Turkiye Petrol Rafinerileri AS, which operates four plants, said yesterday.

India is seeking an additional 5 million tons a year of oil from Saudi Arabia in the year ending March 2013, Junior Oil Minister R.P.N. Singh said in New Delhi yesterday. Saudi Arabia is producing 9.8 million barrels of oil a day and has spare capacity of 2.5 million barrels a day, according to Prince Salman bin Abdulaziz, the kingdom’s deputy oil minister.

Indian refiners including Essar Oil Ltd., Bharat Petroleum Corp., Hindustan Petroleum Corp. and Mangalore Refinery & Petrochemicals Ltd., all of which buy Iranian crude, plan to increase imports from Saudi Arabia as they diversify supplies, people with knowledge of the plans said in November and January.

Saudi Arabia, the largest producer in the Organization of Petroleum Exporting Countries, has told Indian buyers it can replace some of the Iranian crude, two people with knowledge of the matter said July 12. Two of the people with knowledge of the U.S. offer and a third person confirmed this yesterday.

“The oil market is well-supplied at the moment,” Kumar said. “The Saudis have said they have enough spare capacity. It’s the psychological impact of the tensions over Iran that is keeping the price up.”

The U.S.’s talks with nations “include helping partners and allies identify alternative sources of supply, based on the conversations we are also having with supplier nations,” the U.S. State Department’s Nuland said in her e-mail yesterday.

Indian refiners are wary of increasing oil imports from Iran while talks on finding a conduit for payments are continuing, two people with knowledge of the matter said Feb. 21. While they plan to renew term contracts with Iran for the year starting April 1, continued difficulties related to payments may curb supplies, one of the people said.

Oil prices in New York have climbed 10 percent this month, while Brent crude in London has jumped 12 percent, amid increased confrontation between Iran and the U.S. and its allies. The U.S. and Israel haven’t ruled out air strikes against Iran’s nuclear facilities, escalating tension in a region that’s home to 54 percent of global oil reserves. Brent crude traded above $124 a barrel today.

Saudi Arabia, the world’s biggest crude oil exporter, is ready to boost supplies to other nations besides India. The country is prepared to help South Korea secure “stable” crude oil supplies if the Asian country’s imports are disrupted by an embargo on Iran, the kingdom’s Oil Minister Ali al-Naimi said in a meeting with South Korean President Lee Myung Bak in Riyadh on Feb. 7. It can meet any future requests and extra demand from South Korea for oil purchases, he said.

Iraq will raise supply by 250,000 barrels a day this year, Didier Houssin, director of energy markets and security at the International Energy Agency, said Feb. 20. Iraq produced 2.75 million barrels a day last month, according to Bloomberg estimates.

“There is crude available” to replace Iranian supply, Houssin said. “Buyers are looking to Saudi Arabia, Iraq, Russia. Saudi Arabia has said it’s ready to produce more.”

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