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Sellers jockey to fill India's Iran void

Iranian deliveries have dropped significantly despite exemption, but it is not as simple as Saudi Arabia stepping in

Iran's crude deliveries to India have dropped substantially in the last four months, according to data from oil market analytics consultancy OilX. But it is a more opaque picture than Saudi Arabia simply picking up all the slack.

India was one of the eight countries that received an exemption from the US Trump administration in early November from having to reduce its imports of Iranian crude to zero. The waiver lasts for an initial six months.

India's oil minister Dharmendra Pradhan said that the US decision to let India keep buying oil from Iran was a reassertion that interests of consuming nations cannot be ignored, while Trump said the US "will take care of" the eight countries granted exemptions.

Indian Oil Corporation (IOC) and Mangalore Refinery and Petrochemicals Ltd (MRPL) are among those Indian firms continuing to buy Iranian crude, placing orders for 1.25mn t for November delivery. But others, such as Reliance Industries Ltd (RIL), owner of the world's largest refining complex, have decided to halt Iranian imports.

And it is crucial to bear in mind that one of the factors that the US considered when it granted waivers was whether the importers had already shown willingness in voluntarily reducing their Iranian deliveries. The figures from London-based OilX, based on analysis of real-time ship tracking, point strongly to India having already throttled back on its Iranian supply.

OilX puts the average Iran-India supply at an average of just over 570,000bl/d in the first half of 2018, before hitting a peak of 735,000bl/d in July. But that figure was slashed to 490,000bl/d in August and has, according to OilX data, dropped further to an average 350,000bl/d in October and just 305,000bl/d, or only just above 40pc of the July peak, in November.

Saudi Arabia expressed an intention to supply India's oil refiners with an additional 4mn bl in November, leading to some characterisation of it stepping in to take Iranian market share, and potentially also tilting south Asian geopolitics more in its favour as it continues to wage proxy wars with its regional rival Iran.

Saudi deliveries to India are on the rise, and OilX CEO Florian Thaler thinks they could well move higher again in December, based on strengthening in the latter half of November and on the latest nomination rounds for December delivery. Also, Indian demand tends to be seasonally stronger in November and December, while a combination of a recovery in the previously weak Indian rupee and the lower oil prices should strengthen the country's buying power, meaning overall oil import demand could rise, says Thaler.

Saudi imports to India averaged just over 775,000bl/d in the first eight months off the year, according to OilX, but have since ticked up to the highest seen all year at 971,000bl/d in November.

But it's not the only winner from the drop-off in Iranian deliveries. Iraqi volumes into India have been volatile but, from a low of the year of under 775,000bl/d in September, they have rebounded strongly to over 950,000bl/d in October and November, their highest levels since May. And another producer of heavy sour crude has been a perhaps unexpected winner, given its widely-reported travails. Venezuela's Indian deliveries averaged below 325,000bl/d in the first half of the year, but that has risen to a mean of over 425,000bl/d in the last five months, with November's figure just shy of 500,000bl/d, according to OilX data.

A key question is what happens next. The official line is that exemption holders are supposed to work to reduce their exports to zero by the end of the six-month period. But India's strategic relationship with Iran is of sufficient importance to it that India's external affairs minister Sushma Swaraj raised Iran-India issues such as the Chabahar port development and the North South transport corridor, which is intended to improve access for US strategic interest in Afghanistan, with US Secretary of State Mike Pompeo at the India-US 2+2 dialogue meeting in September. New Delhi may argue for an extension or even to be allowed to increase its Iranian imports again.

It may be unwilling to risk Trump's wrath and potential US financial sanctions. But reports suggest that India and Iran have looked at a rupee-based payment arrangement involving India's UCO Bank and Iran based Bank Pasargad, with a view to possibly circumventing any US decree to keep Iranian volumes at very low or even zero levels

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