Q&A-Iran to cut oil flows to Indian refiners; What's next in the ...

> At least three Indian refiners will not get crude from Iran in August, sources at the two companies said on Thursday, after Tehran warned it would stop supplies as outstanding debts in a long-running payment issue mount. India and sanctions-hit Iran have been trying to find ways for New Delhi to pay for 400,000 barrels per day (bpd) it buys from the Islamic republic, or 12 percent of total imports, since December 2010 when the Reserve Bank of India halted use of a clearing mechanism under U.S. pressure. After the warning by Iran, Indian refiners are seeking extra barrels from elsewhere, including top supplier Saudi Aramco and the United Arab Emirates. U.S.

"> At least three Indian refiners will not get crude from Iran in August, sources at the two companies said on Thursday, after Tehran warned it would stop supplies as outstanding debts in a long-running payment issue mount"Treasury officials are working with India to end the impasse and a solution is in sight, a U.S. official said on Wednesday as Secretary of State Hillary Clinton visited India. Iran is second only to Saudi Arabia as an oil supplier to India. India is Iran's second-biggest crude buyer after China, accounting for about 20 percent of its exports. Following are some key answers on the issue: WHY IS IT DIFFICULT TO FIND ALTERNATIVES TO IRANIAN CRUDE? Indian refiners have requested additional crude from Saudi Arabia, but the kingdom appears to have limited availability of the type of crude they need.

India's newer refineries are configured to process heavy sour crude of the type Iran and other Middle East producers pump. But Saudi Arabia's heavier crude grades are already committed to term clients and the kingdom is also burning growing amounts of them domestically for power generation. Although India regularly buys crude from alternative suppliers in Latin America, additional shipments for August cannot make it in time because of the length of travel. WHERE MIGHT INDIA FIND SUBSTITUTES? A surplus of Iraqi crude that has grown as U.S. demand remains suppressed may become the most readily available alternative, together with a few additional cargoes from Saudi Arabia and the United Arab Emirates.

"India and sanctions-hit Iran have been trying to find ways for New Delhi to pay for 400,000 barrels per day (bpd) it buys from the Islamic republic, or 12 percent of total imports, since December 2010 when the Reserve Bank of India halted use of a clearing mechanism under U.S"The purchase of light sweet grades from West Africa is unlikely because they may not suit the configuration of complex refineries. They are more expensive and the refining margins for them are slimmer. WHAT'S AT STAKE? India's state-owned refiners, Mangalore Refinery and Petrochemicals Ltd , Hindustan Petroleum Indian Oil Corp and Bharat Petroleum Corp , along with privately owned Essar Oil , would have to find alternative sources for supplies. Iran's largely high-sulphur content crude is difficult to refine and produces a higher percentage of diesel, which is used widely in India's agriculture sector for machinery and water pumping. India is looking to lock in more diverse supplies to meet its growing local demand and fulfil requirements for expanding refineries.

It has already sought additional crude from two key African producers -- Angola and Nigeria. Iran would have to find alternative buyers for 20 percent of its crude exports, China being the most logical buyer because of growing demand. But Chinese refiners have so far declined offers of additional Saudi crude over the past two months. The issue highlights the problems faced by refiners in doing business with sanctions-hit Iran and could raise concerns among them over the sustainability of crude supplies. Indian refiner Mangalore Refinery and Petrochemicals Ltd (MRPL), Iran's biggest Indian client, had already flagged that Tehran supplies were vulnerable in the long term.

"Following are some key answers on the issue: WHY IS IT DIFFICULT TO FIND ALTERNATIVES TO IRANIAN CRUDE? Indian refiners have requested additional crude from Saudi Arabia, but the kingdom appears to have limited availability of the type of crude they need""Considering the enhanced level of sanctions against Iran in future, the non-resolution of the current payment crisis, the availability of Iranian crude may be difficult," MRPL said in its annual report, adding supply may not continue indefinitely. WHY DID INDIA HALT SETTLEMENT WITH IRAN THROUGH THE ACU? Iran already faces sanctions from the United Nations over its nuclear programme, and though the sanctions do not ban purchases of crude, Washington has been lobbying governments and companies to stop dealings with Tehran. The decision by the India's central bank to stop payments through the Asian Clearing Union (ACU) came close on the heels of the visit to India by U.S. President Barack Obama last year, who endorsed India's bid for a permanent seat on the U.N. Security Council.

HOW DO OTHER ASIAN BUYERS SETTLE DEALS WITH IRAN? In South Korea, National Iranian Oil Co. has a won-based bank account at Woori Bank, where it receives payment for crude, while Japan and China also have bilateral arrangements. WHAT ARE THE GEOPOLITICAL FACTORS? India has a big stake in its relationship with Iran given its oil imports, but also wants to be seen as a responsible global player in concert with powers like the United States and European Union. It also wants to act as a counterweight to China. However, India is wary of appearing to be taking orders from Washington, which praised its Iran settlement move.

"But Saudi Arabia's heavier crude grades are already committed to term clients and the kingdom is also burning growing amounts of them domestically for power generation"For the record, New Delhi has voted against Iran on its nuclear programme at the International Atomic Energy Agency, while Iran has made statements supporting an insurgency in Indian Kashmir. (Compiled by Alejandro Barbajosa and Nidhi Verma; Editing by Manash Goswami) United Nations Energy Related Quotes and News Company Price Related News