Iran’s IRGCN opens new base in Gulf while India increases oil imports

General Ali Fadavi

The Associated Press on 04NOV12 reports Iran’s new IRGCN naval base near Iran’s southern port of Bandar-e Lengeh. (On the same day, Iran announced a new VTOL drone that will reportedly be shown sometime next year). The Guards’ navy chief Gen. Ali Fadavi was reported as saying that “missile and marine units have been deployed” at the new base, which will be able to reach the traffic in the strait.

This development comes as India has increased oil imports from Iran in September by 53%, according to Iran’s PressTV. Accordingly, India’s Mangalore Refinery and Petrochemicals Limited resumed purchasing normal volumes from Tehran following a two-month gap in transactions due to shipping issues bringing levels to 294,400 barrels per day. (The shipping issues are probably now resolved as the Indian government requested state-run insurance companies provide coverage at a premium in August).

Back in June, the US exempted India and six other nations from sanctions for significantly reducing their oil purchases from Tehran after waivers were announced for 10 EU states. (The six additional nations included Malaysia, South Korea, South Africa, Sri Lanka, Turkey and Taiwan).

India was receiving approximately 11% of its oil from Iran which put the country as it’s number 2 supplier. Since then, Iran has fallen to third place, just below Saudi Arabia and Iraq.

According to the Economic Times, India has replaced the volume from Iran by importing about 58 per cent more oil from Latin America in the January-September period. The region now accounts for 14 per cent of overall imports, up from 10 per cent a year ago. That said, India may have to continue cutting imports if it wishes to avoid sanctions and keep its connections with US financial institutions. However, since India cut oil imports by a fifth early in the year, India may already expect to see a renewal after the waiver’s six month expiration.

But if the numbers don’t add up further cuts may be difficult as India is constantly importing more oil to meet its needs. According to the same report from the ET, Indian imports “in the January-September period rose 11 percent to 3.54 million bpd as refining capacity increased.”

While India needs to diversify its oil imports to decrease its exposure to Iran, it’s been loathe to do so. Back in January, then Finance Minister Pranab Mukherjee told reporters, “We (India) import 110 million tonnes of crude per year. We will not decrease imports from Iran. Iran is an important country for India despite US and European sanctions on Iran.”

However, we did see the reductions.

Then two months ago in Delhi, India’s Oil Minister S. Jaipal Reddy told the Petrotech 2012 Conference members that “We (India) are neither trying to reduce nor increase imports from Iran.”

But Like before, if India sees its bottom line being drastically affected, it may have no other choice than to play ball, leaving much of what its politicians say in public quite hollow. Now, with the recent reduction in oil subsidies, such actions could leave the Indian market open for greater fluctuations if India doesn’t further diversify its imports.

For those of us watching, we’ll have to wait and see how this will develop. For the time being, it appears the US has greater bargaining power in the relationship leaving India at a disadvantage unless it can pool the bargaining positions of other countries drastically affected by the sanctions (e.g. like a Japan) in order to balance out the terms. But since Japan has made the most reductions since the fukushima disaster, that option seems unlikely.

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