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Newest Pact: Saudi Arabia set to Deliver Oil to India

After the termination of crude oil imports from Iran due to US sanctions against them, India saw a ray of hope this Friday. Saudi Arabia’s state owned crude oil exporting firm Saudi Armaco and Indian Oil Corporation, are negotiating over an agreement for delivery of additional 2 million barrels of crude oil to India, on existing terms and conditions.

“We have told them we will be taking 2 million barrels every month for six months from July (about 1.6 million tons in total) and they have agreed,” said A K Sharma, Director Indian Oil Finance.

India had been the second largest importer of oil from Iran for over a decade. Considering this huge dependency, India was granted a six-month waiver for purchasing Iranian oil. For now, all the waivers have been set aside rendering India to source for new markets.

Earlier this month the US officials had released a press statement stating it was working on providing alternate oil supply sockets like UAE and Saudi Arabia to ensure India has enough crude oil supply to maintain a stable commodity market. However, what was un-ensured was getting this oil at preferential pricing.

As per the sources, several private oil refining firms in India like Reliance Industries Ltd, Hindustan Petroleum Corp, Bharat Petroleum Corp and Manglore Refinery Petrochemicals are seeking an additional 1 million barrels respectively by November from Saudi Arabia. India as of today, imports approx 25 million barrels in a month from Saudi Arabia.

It thus makes sense that Saudi Aramco is contemplating large scale investments in India’s refining and petrochemical industries to establish a permanent foothold there. After all, in the coming years, India’s energy needs will only grow to uphold industrial size projects to meet those demands.

“No single country can make up for the volumes lost, that’s why we are keeping our sourcing diversified. We are fairly diversified in our sourcing and we have robust sourcing in place to make up for all of the Iranian oil. We have tied up supplies from alternate sources” Indian Oil Corporation Limited Chairperson Sanjiv Singh told reporters.

Crude oil is very much essential for India to maintain its trade deficit. In 2017, India’s trade deficit was $126 billion (4.8 percent of GDP), and crude contributed 35.1 percent to it. India exported $30.2 billion worth of refined petroleum products compared to imports of $74.7 billion.

India and Saudi Arabia in the past have also signed various other commodity agreements like housing, broadcasting, etc under the strategic partnership council. Yet if the commodity markets dwindle owing to shortage of supply, Indian buyers are likely to be hard hit.

Along with crude oil, Gold, which is still in demand in the commodity markets would continue to attract much of investor focus. A prolonged rally in crude prices will spur US shale production perhaps to record levels and lead to a big loss in Saudi market share.

India, considering the current geopolitical stance of the countries across the world, immediately needs to find fresh markets for the import of crude oil. For all the future energy demands, it needs to be deemed fit of providing the same so as not to hamper the foreign investments. For now, the agreement seems to provide a breathing space to Indian stock market commodities.

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