India’s Oil Purchases From Iran Irk U.S.

Fellows Spring 2012

By Christopher Werth

April 04, 2012

Also aired on Marketplace

Next week the U.S. and five other world powers are scheduled to meet with Iranian officials about Iran's nuclear program. The U.S. is pushing for the most comprehensive economic sanctions package ever to get Iran to curb its nuclear ambitions.

But India -- a long-time U.S. ally -- is reluctant to go along, as Christopher Werth reports now from New Delhi.

Iranian crude currently accounts for about 12 percent of India's oil imports. And India has stepped up its purchases since January, according to a report from the International Energy Agency. China and Japan are the only countries that buy more.

But Tarun Lakhotia, an analyst at Kotak Securities in Mumbai, says there's plenty of oil to be had from other producers.

Tarun Lakhotia: "If India were to replace that crude from Iran, they can increase oil imports from countries like Saudi Arabia where there is a reasonable amount of spare capacity."

But so far, the Indian government isn't budging. Finance minister, Pranab Mukherjee, says India abides by U.N. sanctions, but it's not obliged to follow those imposed unilaterally by the U.S. or Europe.

Lydia Powell is with the Observer Research Institute in New Delhi.

Lydia Powell: "India would like to be seen as a country which makes its own decisions. It wants to be seen as a strong, independent country."

And it's a fast growing economy that needs all the energy it can get to maintain its current growth levels and satisfy the fuel hunger of its rising middle class. Powell says even if India wanted to wean itself off Iranian oil, that wouldn't be easy. Many of India's refineries are old and built specifically for processing Iranian crude. Plus, she says, Iran sells its oil to India at a discount.

Powell: "The discounts which these refineries are used to, even if they're just a couple of dollars, it makes a big difference in their profitability."

But under U.S. sanctions, any country that doesn't make a "significant" reduction in Iranian oil imports by June could face sanctions itself. And Indian banks processing oil payments with Iran could be barred from the U.S. banking system.

I'm Christopher Werth for Marketplace.

Christopher Werth reports with support from the International Reporting Project (IRP) in Washington D.C.