Indian refiners will either have to significantly reduce or completely stop importing crude oil from Iran over the next month, increasing their dependence on other Middle Eastern suppliers like Saudi Arabia and Iraq, Moody's Investors Service said Thursday.
US President Donald Trump earlier this week in a speech to the United Nation's General Assembly reiterated sanctions on Iranian oil exports will take effect on November 5 and that the US is working with countries that import Iranian oil to cut their purchases substantially.
India is the second largest buyer of Iranian crude after China, accounting for about 30 percent of total crude exports from the Persian Gulf nation during April-August 2018.
Indian refineries, which import over 80 percent of their crude feedstock from overseas, sourced about 14 percent of their imports from Iran.
"We expect Indian refiners will either have to significantly reduce or completely stop importing crude oil from Iran over the next month or so.
"As a result, Indian refiners will increase dependence on the remaining Middle Eastern crude oil suppliers (mainly Saudi Arabia and Iraq), aside from Iran," Moody's said.
Iranian crude is usually sold at a discount of up to $2-4 per barrel to other Middle Eastern crude oil grades.
Iran's national oil company, National Iranian Oil Company, also subsidises the freight costs for crude oil delivery and offers extended payment terms to buyers.
"Assuming a complete cessation of imports of Iranian crude and $3 per barrel negative impact on earnings because of that, on the barrels being substituted, we estimate total decline in earnings for Indian refiners to be $400-500 million, against combined EBITDA of about $10 billion for the 3 largest state-owned Indian refiners in 2017-18," it said. "Thus we expect the impact on the refiners' credit metrics to be limited."
Iranian crude oil is imported into India by refiners including Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL), Hindustan Petroleum Corp Ltd (HPCL), Reliance Industries, Nayara Energy and Mangalore Refinery and Petrochemicals Ltd (MRPL).
"The sanctions on Iranian oil are credit negative for Indian refiners because their supplier concentration will increase after the sanctions take effect.
"The refiners' exposure to oil price volatility will also increase if they turn to the spot market," Moody's said.
It said India imported 220.4 million tonne (MT) of crude oil in 2017-18 fiscal, out of which about 9.4 percent was from Iran. During April-August 2018, India imported 94.9 MT of crude, out of which about 14.4 percent was from Iran.
Exports to India accounted for 21 percent of Iran's crude oil outbound shipments in 2017-18 and 30 percent from April to August 2018.