India has stepped up diplomatic efforts to limit the damage from disruptions in oil supply as a result of drone attacks on oil facilities in Saudi Arabia. The junior minister in the Ministry of External Affairs, V. Muraleedharan, who was in Kuwait on Saturday, has spoken to several supplier countries to ensure additional supplies while Foreign Secretary Vijay Gokhale has kept the window open for possible ramp-up of imports from Iran. India has substantially reduced oil purchases from Iran due to US pressure. India is third-largest consumer of oil in the world. Saudi Arabia is its second-largest supplier. India imported 83 per cent (207.3 million tonnes) of its oil needs in 2018/19. Of this, Saudi Arabia supplied 40.33 million tonnes.
The Saturday drone strikes on the Saudi facilities that have reduced oil production by 5.7 million barrels a day have created multi-pronged challenges for India, along with their other big importers such as Korea, Japan and China. One has been a sharp spike in prices. It has also led to uncertainty over supplies for Indian refineries. "Crude oil settled at about 10 per cent gains after rocketing by 20 per cent. Saudi production will likely take several weeks to return to normal. But there seems to be strong intent on the part of the US and the IEA to release stockpiles to stave off any supply shock," says Vandana Hari of Singapore based commodity tracker Vand Insight.
Officials at the petroleum ministry told BT that they have checked the reserves with oil marketing companies and are comfortable with the stocks. "Yesterday, (September 15), Saudi Aramco informed Indian refiners that there would be no shortage of supplies to them. The Ministry of Petroleum and Natural Gas is closely monitoring the situation in consultation with Indian refiners and Saudi Aramco," the oil ministry said in a press note on Monday afternoon. The ministry asked the refiners to stay flexible for switching to different grades of crude oil. Saudi oil quality is almost the same as the quality of oil from Iran and Iraq. In the last two years, Iraq has become India's largest supplier of crude oil, surpassing Saudi Arabia.
However, the officials are not leaving anything to chance. They know that the wiping out of 5 per cent global supplies cannot be compensated by the limited spare capacity of the OPEC nations. The officials told BT that the Saudis have reserves for the next one week, while the expected outage may last beyond 45 days. "Any further escalation of the geo-political tension in West Asia -especially if the Saudis retaliate - would add a risk premium to oil and make supplies even more scarce," said an official.
Ministry of External Affairs officials told BT they are looking for alternative avenues as part of a contingency plan. This includes purchase of crude oil from other countries. The foreign secretary is already in Tehran for the 16th round of Foreign Office Consultations to review the ongoing infrastructure and connectivity projects there. He met Tehran's Foreign Minister Javad Zarif along with other top officials and discussed the situation arising after the attacks. However, Tehran is a complex problem. It is under US sanctions over its nuclear programme. The US has forced most countries to bring their oil imports from Iran to zero. New Delhi is insisting on getting alternative supplies from Iran and is exchanging notes with Washington on the developments; it is seeking some relaxation of the sanctions to accommodate the current realities.
India has other concerns too. Many see Tehran's (direct or indirect) hand in the attacks. China may use the situation to increase its leverage with Tehran. China and Turkey had refused to budge to the US pressure to bring oil imports from Iran to nil. New Delhi is busy checking all the boxes to deal with one of the biggest oil-related geo-political tensions in the last two decades.