NEW DELHI - India is seeking to diversify its oil import sources amid tough U.S. sanctions on Iran and Venezuela, two key members of the Organization of the Petroleum Exporting Countries that provides the bulk of its crude needs.
On Monday, state-run Indian Oil Corp., the country's largest refiner and fuel retailer, announced the signing of an annual contract for the purchase of U.S. crude under which it will import three million tons of oil worth about $1.5 billion in the fiscal year beginning April.
Without naming the supplier, the company said in a statement that it was the first time that a government oil company has finalized an annual contract for the import of U.S.-origin crude oil.
India's move is significant at a time when Iran, a key OPEC supplier, is crippled by U.S. sanctions imposed on Nov. 4 after Washington pulled out of the 2015 nuclear deal between the two. It also follows the U.S. imposition of sanctions on Venezuela's state-run energy provider PDVSA on Jan. 28 to ramp up pressure on President Nicolas Maduro to resign.
The U.S. has permitted India and seven other countries to import a limited quantity of Iranian oil under a six-month sanctions waiver, which New Delhi hopes will be extended.
Analysts see the IOC move as part of efforts to ensure the smooth supply of oil to India in the wake of geopolitical tensions involving Iran and Venezuela.
"India definitely wants some other [oil import] sources. In the past, whenever there were disturbances in Iraq and Kuwait, its oil supplies were in a very bad shape and it doesn't want to face that kind of situation again," said Pankaj Jha, professor of strategic studies at the O.P. Jindal Global University in northern Haryana state.
He added that OPEC remains important for India as it buys "a high volume" of oil from the cartel.
The country - which has a population of more than 1.25 billion and buys over 80% of its oil from overseas sources to fuel a rapidly growing economy -- imported about 83% of its total crude; 98% of liquefied petroleum gas; and 74% of liquefied natural gas from the cartel in the financial year that ended March 2018.
In the wake of sanctions, India's oil imports from Iran fell by 45% year-on-year in January to 270,500 barrels per day, according to ship tracking data reviewed by Reuters. It showed India's total oil imports in January were about 4.6 million bpd, a drop of about 10.4% from a year earlier.
Venezuela, on the other hand, is trying to court India to buy more of its oil as its supplies to American companies were halted after the imposition of U.S. sanctions. Its oil minister and PDVSA President Manuel Quevedo said during a recent visit to India that his country aimed to double the crude it was selling to Indian companies such as Reliance Industries and Nayara Energy, from the current level of over 300,000 barrels per day.
This prompted Washington to warn New Delhi against buying Venezuelan oil. "Nations and firms that support Maduro's theft of Venezuelan resources will not be forgotten," U.S. National Security Adviser John Bolton tweeted on Feb. 12, along with a news report about Quevedo's India visit a day earlier.
India, however, maintains that "commercial considerations and related factors" will determine the value of its trade with any country, including Venezuela which currently holds the rotating chair of OPEC.
Asia's third largest economy, meanwhile, continues to struggle with a burgeoning oil import bill owing to a spike in global crude prices and the depreciation of the rupee.
In its latest report, India's Oil Ministry's Petroleum Planning & Analysis Cell said crude oil imports costs are estimated to increase by 27% to $112 billion in the current fiscal year that will end in March, from a year ago.
Its forecast was based on an Indian basket crude oil price of $57.77 per barrel and an exchange rate of 70.73 rupees per U.S. dollar for January-March this year. These estimates have already missed their marks: An Indian basket of crude stands at around $65 a barrel now while the rupee has breached the 71 mark against the dollar, which suggests that New Delhi could be staring at a much higher oil import bill this year.
According to energy research and consultancy group Wood Mackenzie, India's demand for crude oil is rising at a pace that will outstrip China's volume of growth and put the country right behind the U.S. in this measure in 2019.