New Delhi, Oct 15: Indian oil companies like IOC have optional volumes built in their annual crude oil purchase contracts with suppliers like Saudi Arabia and Iraq that will be more than enough to make up for any shortfall in supplies from sanctions-hit Iran, senior officials said on Monday.India had contracted to import about 25 million tonnes of crude oil from Iran in the fiscal year 2018-19 (April 2018 to March 2019), up from 22.6 million tonnes imported in 2017-18."We have optional volumes built in with all our term suppliers. These optional volumes can be taken at any time of the year and would be more than sufficient to make up for any shortfall that may arise because of US sanctions against Iran," a top official at a state-run refiner said.
India, the world's third-biggest oil consumer, meets more than 80% of its oil needs through imports. Iran is its third-largest supplier after Iraq and Saudi Arabia and meets about 10% of total needs.
US sanctions against Iran oil sector kick in from November 4 that will block all payment routes to the Persian Gulf nation.
Officials said supplies from Iran will not be a problem till month end, leaving only five months of contracted supplies at risk.
Those volumes can be easily covered by exercising optional volumes available in contracts with Saudi Arabia, Iraq and other suppliers.
"Every year when we sign term contracts with suppliers, there is an optional volume built in. This volume is to take care of any exigencies. Such optional volume is more than enough to make up for five months of Iranian oil supplies," an official said. "We have all plans in place for supplement any lost Iranian volume."
Officials said Indian refineries will not be impacted even if Iranian oil imports were to completely stop, but New Delhi is keen to continue buying oil from its traditional ally.
Last week, oil minister Dharmendra Pradhan had stated that two state refiners have placed orders for importing crude oil from Iran in November, the month when US sanctions on Iranian oil purchases take effect.
Indian Oil Corp (IOC), Mangalore Refinery and Petrochemicals (MRPL) have together placed orders for 1.25 million tonnes of crude oil from Iran.
After US sanctions against Iran, paying in rupee is an option. Iran can use the rupee to settle its imports of pharmaceuticals and other goods from India.
While India wants to continue importing Iranian oil, albeit a reduced volume, US Secretary of State Mike Pompeo last month stated that Washington would consider waivers on the embargo but made it clear that these would be time-limited, if granted.
IOC had planned to import 9 million tonnes of Iranian oil in the 2018-19 financial year or 0.75 million tonnes a month. For November, it has contracted its usual volume.
For rupee payments, oil companies could use UCO Bank or IDBI Bank to route oil payments to Iran, sources said.
India's actual import from Iran may be far less than the contracted volumes as companies like Reliance Industries have totally stopped buying oil from Iran and others too are scaling it down in hope of winning a sanction waiver from the US. Nayara Energy, formerly Essar Oil, too is stopping import from the Persian Gulf nation.
US President Donald Trump in May withdrew from the 2015 nuclear accord with Iran, re-imposing economic sanctions against the Persian Gulf nation. Some sanctions took effect from August 6, while those affecting the oil and banking sectors will start from November 4.
Sources said Iran is open to accepting rupee payment for oil and may use the money to pay for equipment and food items it buys from India.
UCO Bank and IDBI Bank have been identified to route the payment as the two have no exposure to the US financial system.
UCO Bank had in the previous round of sanctions handled rupee payments.
Currently, India pays its third largest oil supplier in euros using European banking channels. These channels would get blocked from November.
During the first round of sanctions when EU joined the US in imposing financial restrictions, India initially used a Turkish bank to pay Iran for the oil it bought, but beginning February 2013 paid nearly half of the oil import bill in rupees while keeping the remainder pending till the opening of payment routes. It began clearing the dues in 2015 when the restrictions were eased.
Besides, New Delhi sought to get around the restrictions by supplying goods, including wheat, soybean meal and consumer products, to Iran in exchange for oil.
Sources said this time around the entire 100% of Iranian oil import bill can be paid in rupees.
Iran was India's second biggest supplier of crude oil after Saudi Arabia till 2010-11 but Western sanctions over its suspected nuclear programme relegated it to the seventh spot in the subsequent years. In the 2013-14 and 2014-15, India bought 11 million tonnes and 10.95 million tonnes respectively from it.
Sourcing from Iran increased to 12.7 million tonnes in 2015-16, giving it the sixth spot. In the following year, the Iranian supplies jumped to 27.2 million tonnes to catapult it to the third spot.
Iranian oil is a lucrative buy for refiners as the Persian Gulf nation provides 60 days of credit for purchases, terms not available from suppliers of substitute crudes -- Saudi Arabia, Kuwait, Iraq, Nigeria, and the US.
Besides blocking of banking channels from November, the absence of payment mechanism may pose a challenge to the transportation of the oil as Iranian crude is bought on a CIF basis and shipped on Iranian tankers.
Under Cost, Insurance and Freight (CIF) mode of shipping, the seller assumes the responsibility of transportation and insurance. The liability and costs associated with successful transit are paid by the seller until the goods are received by the buyer.
Also, insurance companies may not be willing to provide cover to refineries processing Iranian oil.