Officials from Iran and India will meet on Friday for talks on a dispute over how India makes payments for $12 billion worth of crude oil imports a year.
The dispute escalated on Wednesday when Tehran refused to sell oil to the world's fourth-biggest crude importer after New Delhi imposed prohibitive new rules. Last week, the Reserve Bank of India said deals with Iran must be settled outside a long-standing Asian Clearing Union system.
Iran is under global pressure over its nuclear programme, and though United Nations sanctions do not forbid the purchase of Iranian oil, the United States has pressed hard for governments and companies to stop dealing with Tehran.
UN sanctions on the financial sector make financing trade and clearing payments difficult. Supply of around 400,000 barrels per day (bpd) of Iranian crude to state-owned refiners and privately owned Essar Oil in India is at risk. This is the equivalent of about 13 percent of the crude processed in India last month.
Is Iran likely to stop supplying India?
Analysts and oil traders expect the two countries to resolve the issue, given the large volume and value of the crude at stake and the difficulties Indian refiners would face in finding alternative supplies.
"They (the United States) have themselves not been willing to sanction crude sales from Iran (to the international market) for the obvious balance of supply and demand," said Samuel Ciszuk at IHS Energy consultancy.
"However, informally they (the United States) have been using financial sanctions as the main tool of pressure to cause uncertainty and insecurity for Iran. They want to make sure no one finds it easy to deal with Iran," he added.
Oil traders in Asia also said they expected sales to resume because a full suspension would be too costly for India. Indian refiners may have to explore alternative payment methods such as open credit or barter trade, one trader said. These are already used by some of Iran's oil trade partners.
Ambika Sharma , deputy secretary general at the Federation of Indian Chambers of Commerce and Industry, said: "The two central banks could look at settling the trade transaction in a currency other than the euro and the U.S. dollar"
India has been one of the top three buyers of Iranian crudes along with China and Japan , and Iran is the second-biggest supplier of crude to India after Saudi Arabia.
What happens if Iran stops supplying India?
Spot prices for alternative crude on physical markets would probably rise as Indian refiners search for suppliers to plug the gap left by the shortfall from Iran. But prices for Iranian crude would probably fall as it looks for new buyers or seeks to boost volumes to existing buyers.
International crude futures could rise on concern that the disruption would become more widespread and that other countries could also struggle to find ways to make payments. Iran's other main Asian buyers said on Thursday, however, they saw no disruption in supply.
Thursday, December 30, 2010
Sanctions on IRAN
State-run refineries could run low on their stock of crude next month as the RBI move to curb payment facilities with Iran has put a question mark over supply of some 10 million barrels of oil from the Persian Gulf nation contracted for January.
Realizing the gravity of the situation, top RBI officials will meet their Iranian counterparts shortly in Mumbai to finalize a panel of banks through which payments can be made. Till 2008, payments under the ACU (Asian Clearing Union) mechanism was done in Greenbacks, but after the US imposed sanctions against Iran, the currency shifted to the euro.
Oil ministry officials said the RBI move had taken them by surprise and a replacement for the January contract may not be easy to find or will come at a huge cost, which will negatively impact the oil firms. Iran accounts for some 12% of India's oil needs and a sudden snapping of a system in vogue from 1976 could spell doom if an alternative is not found quickly, one official said.
UN sanctions do not forbid buying Iranian oil and recently the European Central Bank (ECB) asked the RBI and other central banks of ACU to provide certificates that the euro being used to import products are not on US sanctions list. Sources said while certification for crude oil imports was easy to provide and track, the RBI chose to scrap the entire system itself.
In the absence of ACU, Iran and its crude supplier National Iranian Oil Co (NIOC) are jittery over sales without being backed by the sovereign guarantee of the central bank. Also, oil firms will have to find an alternative European bank, which can accept payments on behalf of NIOC.
India imported 21.3 million tonnes of crude oil from Iran in 2009-10 and this year imports are expected to be around 18 million tonnes as Reliance Industries has totally stopped using crude from that country. MRPL is the biggest importer of Iranian crude oil with 7.1 million tonnes of contracted quantity. Mumbaibased Essar Oil imports roughly 3 million barrels per month (5-5 .5 million tonnes a year), IndianOil 3.5 million tonnes and Hindustan Petroleum Corp about 3 million tonnes.
Realizing the gravity of the situation, top RBI officials will meet their Iranian counterparts shortly in Mumbai to finalize a panel of banks through which payments can be made. Till 2008, payments under the ACU (Asian Clearing Union) mechanism was done in Greenbacks, but after the US imposed sanctions against Iran, the currency shifted to the euro.
Oil ministry officials said the RBI move had taken them by surprise and a replacement for the January contract may not be easy to find or will come at a huge cost, which will negatively impact the oil firms. Iran accounts for some 12% of India's oil needs and a sudden snapping of a system in vogue from 1976 could spell doom if an alternative is not found quickly, one official said.
UN sanctions do not forbid buying Iranian oil and recently the European Central Bank (ECB) asked the RBI and other central banks of ACU to provide certificates that the euro being used to import products are not on US sanctions list. Sources said while certification for crude oil imports was easy to provide and track, the RBI chose to scrap the entire system itself.
In the absence of ACU, Iran and its crude supplier National Iranian Oil Co (NIOC) are jittery over sales without being backed by the sovereign guarantee of the central bank. Also, oil firms will have to find an alternative European bank, which can accept payments on behalf of NIOC.
India imported 21.3 million tonnes of crude oil from Iran in 2009-10 and this year imports are expected to be around 18 million tonnes as Reliance Industries has totally stopped using crude from that country. MRPL is the biggest importer of Iranian crude oil with 7.1 million tonnes of contracted quantity. Mumbaibased Essar Oil imports roughly 3 million barrels per month (5-5 .5 million tonnes a year), IndianOil 3.5 million tonnes and Hindustan Petroleum Corp about 3 million tonnes.
Tuesday, December 28, 2010
Should diesel prices be increased": Chairman in an exclusive debate in Business Standard
The increase in prices will impact prices of food and other essential commodities, but it is important if the oil marketing companies are to progress so that the country can meet its ever-growing energy needs.
Mr. B M Bansal,
Chairman, Indian Oil Corporation Ltd.
The deregulation of diesel has the potential to unlock the value of the oil firms. Today subsidies affect both oil marketing companies and upstream companies.
It is normally assumed that regulation is beneficial and the only prudent approach in a nation as complex as it is poor is to have a policy that benefits the underprivileged. But some regulations are often rendered obsolete owing to dynamic shifts in the business. And soon, the realities of the market start impinging on even the best of good intentions! Diesel has long been seen as a sensitive fuel along with kerosene and LPG. It was thought that kerosene and LPG impacted the aam aadmi and the price of diesel was linked to inflation. It is correct that diesel prices have an implication for the economy with the “trickle down” effect on the freight and goods sector.
The flip side is that over a period of time with the cost of diesel kept artificially low in comparison to alternatives, passenger transport tends to get “dieselised”. You only have to look at the number of diesel passenger cars and sports utility vehicles (SUVs) being sold, especially in the luxury segment. The question is: are we subsidising an SUV culture? Should the relatively low-income earning two-wheeler owner pay for free-market petrol while owners of high-end luxury cars and SUVs get a subsidy from the government?
We need a mass rapid transit infrastructure policy under which the transportation of people and goods should not depend on roads alone. The potential of the railways should be fully tapped. The diesel subsidies can actually be invested in big-ticket mass transportation systems that will wean people off the addiction to diesel-based transport.
The central government has already rationalised customs and excise duties to alleviate the impact of volatile international prices on retail selling prices. But the state governments have chosen to keep the sales tax at fairly high rates in view of the revenue-earning potential of diesel. This apart, private oil companies have closed their retail outlets despite making quite a lot of investment in them, a move that has meant a shift in sales to public sector oil marketing companies’ outlets, which has resulted in an additional burden. Investments made by the private sector in the hydrocarbon value chain, especially the retail network, have been rendered useless.
Deregulating diesel has the potential to unlock the value of the oil companies. Today subsidies affect both oil marketing companies and upstream companies. Valuable resources being spent by the government could actually go into ensuring oil security. Today, we have excellent examples of companies that have been rewarded by investors who are even willing to pay a premium. Ultimately, the beneficiary is the nation because these companies are owned by the people of India. The price of crude is a much speculated issue and it is commonly accepted that the days of cheap crude oil are long gone. And countries that are dependent on foreign sources for the energy needs are scouting for and investing in oil equity assets. These efforts are being led by national oil companies backed by Sovereign Wealth Funds. The best example is China, which is building a “Great Wall” of energy assets that will fuel its needs into the distant future.
The way forward for India is for our national oil companies to get into the act to build a truly international portfolio of oil and gas assets. The government has been supporting the efforts of the national oil companies by empowering them through the Maharatna status. But, investing for the future should obviously come from the present. And by paying the right price for energy products and services we generate the revenues for investing for the next generation.
Beyond urban India, which has benefited from the rapid growth of the last decade, is the real India, where there are millions of our people struggling to make ends meet. When the oil marketing companies moved to the rural market, opening up retail outlets and appointing LPG distributors, we so a tremendous difference to livelihoods. All this will take long-term, sustained investments for the real “aam aadmi”. And the sooner we define the “real aam aadmi” the better, for we need to tackle the real and imperative task of delivering energy assurance to over a billion Indians into the next decades as well.
Mr. D Raja, CPI Member of Parliament
The government has not made any sincere attempt at accelerating the exploration of oil and natural gas in the country to augment domestic supply to control the price rise.
The Union government has become insensitive towards rising prices and rampant corruption in the country and the people will teach it a lesson when the next general elections come around.
The country is facing huge losses on account of the price at which 2G spectrum was sold to private operators and from questionable contracts for the Commonwealth Games. But the government seems to be more concerned about increasing the prices of petrol and other commodities. After the government decided to raise the price of petrol by Rs 3 a litre, the price of diesel is certain to be increased any moment.
There have been several such increases since the United Progressive Alliance government came to power. The recent price rise would also have a cascading effect on the common people because increasing the prices of petrol and diesel would impact the prices of food and other essential commodities. In the past six months, the price of petrol has gone up by Rs 8.41.
Interestingly, a substantial part of the duties imposed by the government on petrol and diesel goes to the government. I would like to know why the Union and state governments can’t cut their share of taxes on these products. The Left parties have been raising these issues, both inside and outside Parliament, and we will continue to ask the government this question.
If prices continue to rise in the same manner, how will the common people in this country pay for essentials? Latest reports show that 77 per cent of the people earn barely Rs 20 or less per day. How will they buy food items if prices continue to rise? Poverty is a big problem in India and half the population is not even earning half-a-dollar a day. To make things worse for them, the government is not even considering raising minimum wages. I want to know how people will buy vegetables and other essential food items with the same income. The government must explain this.
On the issue of oil price decontrol, ever since the Union government gave oil companies the autonomy to selectively determine product prices, the prices of petrol and diesel have only increased. I don’t remember a day when the oil companies actually reduced the prices of petrol and diesel. It seems the autonomy was given only to the oil companies to raise prices and burden the people. The government is not clear about what it is doing by increasing these prices.
Oil producers might argue that the price rise is a function of demand and supply. But it is also true that the government has not made any sincere attempt at accelerating the exploration of oil and natural gas in the country to augment domestic supply. It has not made serious efforts to carry out exploration work near Bombay High and Krishna Basin to find new reserves of oil and natural gas within the country to control the oil price rise.
The Supreme Court has also said natural gas is a national asset. I want to know how the government is using these national assets for the welfare of the common people. The government has to come out with short-term and long-term perspectives for energy security.
Earlier, the government was talking about Iran-Pakistan-India (IPI) pipeline and now, it has suddenly started discussing a Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline. If the IPI pipeline is not feasible how can the government even consider TAPI viable? The government doesn’t consider discussing these issues either inside or outside Parliament.
The government has so far maintained that rich people can afford to pay higher prices for petrol. I want to know what steps the government is taking to improve the public transport system in different cities. Will the government increase taxes on luxury cars? The entire process of increasing petrol and diesel prices smacks of profiteering.
It has become the mindset of this government to generate revenue by increasing prices of petrol and diesel. The government should generate revenue for exploration and to augment resources but it should not be done at the cost of the common people.
Mr. B M Bansal,
Chairman, Indian Oil Corporation Ltd.
The deregulation of diesel has the potential to unlock the value of the oil firms. Today subsidies affect both oil marketing companies and upstream companies.
It is normally assumed that regulation is beneficial and the only prudent approach in a nation as complex as it is poor is to have a policy that benefits the underprivileged. But some regulations are often rendered obsolete owing to dynamic shifts in the business. And soon, the realities of the market start impinging on even the best of good intentions! Diesel has long been seen as a sensitive fuel along with kerosene and LPG. It was thought that kerosene and LPG impacted the aam aadmi and the price of diesel was linked to inflation. It is correct that diesel prices have an implication for the economy with the “trickle down” effect on the freight and goods sector.
The flip side is that over a period of time with the cost of diesel kept artificially low in comparison to alternatives, passenger transport tends to get “dieselised”. You only have to look at the number of diesel passenger cars and sports utility vehicles (SUVs) being sold, especially in the luxury segment. The question is: are we subsidising an SUV culture? Should the relatively low-income earning two-wheeler owner pay for free-market petrol while owners of high-end luxury cars and SUVs get a subsidy from the government?
We need a mass rapid transit infrastructure policy under which the transportation of people and goods should not depend on roads alone. The potential of the railways should be fully tapped. The diesel subsidies can actually be invested in big-ticket mass transportation systems that will wean people off the addiction to diesel-based transport.
The central government has already rationalised customs and excise duties to alleviate the impact of volatile international prices on retail selling prices. But the state governments have chosen to keep the sales tax at fairly high rates in view of the revenue-earning potential of diesel. This apart, private oil companies have closed their retail outlets despite making quite a lot of investment in them, a move that has meant a shift in sales to public sector oil marketing companies’ outlets, which has resulted in an additional burden. Investments made by the private sector in the hydrocarbon value chain, especially the retail network, have been rendered useless.
Deregulating diesel has the potential to unlock the value of the oil companies. Today subsidies affect both oil marketing companies and upstream companies. Valuable resources being spent by the government could actually go into ensuring oil security. Today, we have excellent examples of companies that have been rewarded by investors who are even willing to pay a premium. Ultimately, the beneficiary is the nation because these companies are owned by the people of India. The price of crude is a much speculated issue and it is commonly accepted that the days of cheap crude oil are long gone. And countries that are dependent on foreign sources for the energy needs are scouting for and investing in oil equity assets. These efforts are being led by national oil companies backed by Sovereign Wealth Funds. The best example is China, which is building a “Great Wall” of energy assets that will fuel its needs into the distant future.
The way forward for India is for our national oil companies to get into the act to build a truly international portfolio of oil and gas assets. The government has been supporting the efforts of the national oil companies by empowering them through the Maharatna status. But, investing for the future should obviously come from the present. And by paying the right price for energy products and services we generate the revenues for investing for the next generation.
Beyond urban India, which has benefited from the rapid growth of the last decade, is the real India, where there are millions of our people struggling to make ends meet. When the oil marketing companies moved to the rural market, opening up retail outlets and appointing LPG distributors, we so a tremendous difference to livelihoods. All this will take long-term, sustained investments for the real “aam aadmi”. And the sooner we define the “real aam aadmi” the better, for we need to tackle the real and imperative task of delivering energy assurance to over a billion Indians into the next decades as well.
Mr. D Raja, CPI Member of Parliament
The government has not made any sincere attempt at accelerating the exploration of oil and natural gas in the country to augment domestic supply to control the price rise.
The Union government has become insensitive towards rising prices and rampant corruption in the country and the people will teach it a lesson when the next general elections come around.
The country is facing huge losses on account of the price at which 2G spectrum was sold to private operators and from questionable contracts for the Commonwealth Games. But the government seems to be more concerned about increasing the prices of petrol and other commodities. After the government decided to raise the price of petrol by Rs 3 a litre, the price of diesel is certain to be increased any moment.
There have been several such increases since the United Progressive Alliance government came to power. The recent price rise would also have a cascading effect on the common people because increasing the prices of petrol and diesel would impact the prices of food and other essential commodities. In the past six months, the price of petrol has gone up by Rs 8.41.
Interestingly, a substantial part of the duties imposed by the government on petrol and diesel goes to the government. I would like to know why the Union and state governments can’t cut their share of taxes on these products. The Left parties have been raising these issues, both inside and outside Parliament, and we will continue to ask the government this question.
If prices continue to rise in the same manner, how will the common people in this country pay for essentials? Latest reports show that 77 per cent of the people earn barely Rs 20 or less per day. How will they buy food items if prices continue to rise? Poverty is a big problem in India and half the population is not even earning half-a-dollar a day. To make things worse for them, the government is not even considering raising minimum wages. I want to know how people will buy vegetables and other essential food items with the same income. The government must explain this.
On the issue of oil price decontrol, ever since the Union government gave oil companies the autonomy to selectively determine product prices, the prices of petrol and diesel have only increased. I don’t remember a day when the oil companies actually reduced the prices of petrol and diesel. It seems the autonomy was given only to the oil companies to raise prices and burden the people. The government is not clear about what it is doing by increasing these prices.
Oil producers might argue that the price rise is a function of demand and supply. But it is also true that the government has not made any sincere attempt at accelerating the exploration of oil and natural gas in the country to augment domestic supply. It has not made serious efforts to carry out exploration work near Bombay High and Krishna Basin to find new reserves of oil and natural gas within the country to control the oil price rise.
The Supreme Court has also said natural gas is a national asset. I want to know how the government is using these national assets for the welfare of the common people. The government has to come out with short-term and long-term perspectives for energy security.
Earlier, the government was talking about Iran-Pakistan-India (IPI) pipeline and now, it has suddenly started discussing a Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline. If the IPI pipeline is not feasible how can the government even consider TAPI viable? The government doesn’t consider discussing these issues either inside or outside Parliament.
The government has so far maintained that rich people can afford to pay higher prices for petrol. I want to know what steps the government is taking to improve the public transport system in different cities. Will the government increase taxes on luxury cars? The entire process of increasing petrol and diesel prices smacks of profiteering.
It has become the mindset of this government to generate revenue by increasing prices of petrol and diesel. The government should generate revenue for exploration and to augment resources but it should not be done at the cost of the common people.
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