India’s state oil refiners are planning to reduce their reliance on the Middle East following the supply shock of the Iran war, and will lean more heavily on alternative options including through spot-market purchases, according to people familiar with the matter.
Processors are seeking to trim the volume they buy from producers in the Middle East under long-term contracts, said the people, who asked not to be identified as the discussions are not public.
Options under consideration by refiners include more immediate deals but also supply arrangements with trading houses that source crude from multiple regions, allowing for steady deliveries even in the event of another major disruption, they said.
The Iran war has exposed India’s reliance on the Middle East for energy imports, from oil to liquefied petroleum gas, and has led to shortages, higher prices and heavy losses for refiners.
The South Asian nation imports about 90% of its crude needs, averaging around 5 million barrels a day. Processors such as Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp. typically buy nearly half of their overall crude through long-term deals, with the remainder from the spot market.
Indian Oil, BPCL, HPCL didn’t immediately reply to emails seeking comment.
US waivers allowing the purchase of Russian oil have provided some supply relief for Indian refiners, which have snapped up large volumes. That relief is still temporary, however.
As part of its diversification strategy, India is planning to take advantage of new supply from countries such as Guyana, Brazil, and the US, the people familiar said.
During the height of the conflict, India was forced into a diplomatic scramble to keep energy flowing from the Middle East. That included reaching out to Iran and its military to request tankers carrying LPG be allowed to transit the Strait of Hormuz, they said. Top oil ministry officials also worked the phones, calling senior figures in Persian Gulf countries to ensure fuel supplies, they added.
India’s External Affairs Minister S Jaishankar visited the United Arab Emirates in April, followed by Prime Minister Narendra Modi a few weeks later. Ajit Doval, the national security adviser, made a trip to Saudi Arabia the same month, while Oil Minister Hardeep Puri visited Qatar to seek supplies.
The change to India’s oil-buying strategy would mark one of the biggest shifts in years, and will require balancing energy security needs while keeping crude-purchasing costs in check. Even before the war, Indian Oil was working toward setting up a trading desk in partnership with Vitol Group, a sign the country’s largest state refiners are seeking to modernize its procurement.
Separately, India is planning to build strategic reserves of crude, LPG and liquefied natural gas that are large enough to meet as much as a month of domestic demand. The oil ministry has set up a committee to study details, including operating models and potential locations for energy supplies.
This report is auto generated from the Bloomberg news service. ThePrint holds no responsibility for its content.