India’s 'robust plan' to maintain oil imports might include a buyers collective with another large oil importer

• In response to US sanctions on Iranian oil imports, the Indian government has said it will “put in place a robust plan to ensure that there is adequate supply of crude oil to Indian oil refineries.”
  
• In addition to higher imports from Saudi Arabia, Mexico and the UAE, this plan could include a tie-up with China.
  
• The two countries are said to be in talks to form a buyers collective to purchase oil supplies together, which will enable them to bargain for better prices.

The US’s decision to end waivers on imports of Iranian oil in early May must have come as a blow to the Indian government. The country sources more than 10% from its oil from Iran and also receives lower rates and favourable credit shipping terms.

In response to the move, India’s Ministry of Petroleum and Natural Gas issued a statement of reassurance amid fears of a supply disruption and that domestic fuel prices would skyrocket.

“The Government of India has put in place a robust plan to ensure that there is adequate supply of crude oil to Indian oil refineries from May 2019 onwards. There will be additional supplies from other major oil producing countries from different parts of the world” the statement read.

What exactly does this robust plan by the world’s third-largest oil importer entail? In addition to higher imports from Saudi Arabia, Mexico and the UAE, it could include a tie-up with China - the world’s second largest oil importer, according to a Mint report.

The two countries are said to be in talks to form a buyers collective to purchase oil supplies together, which will enable them to bargain for better prices. They could do this by lobbying the Organization of Petroleum Exporting Countries (OPEC) to reduce mark-ups on oil exported to Asia.

A bargaining bloc is the need of the hour. Prices for Brent crude oil rallied past $75 for the first time in 2019 earlier this week amid a disruption in the supply of Russian oil as well as production cuts by OPEC countries.

To offset the reduction in global oil supplies due to sanctions on Iran, the US is pressuring Saudi Arabia to lift curbs but it is yet to be seen whether that will come to pass.

Higher oil prices means a higher import bill for both India and China, a higher fiscal deficit and a hit to their currencies.

Interestingly, the two countries are reportedly preparing for a second informal summit to discuss a number of issues such as border disputes, the Belt and Road Initiative, sources told Hindustan Times. The buying plan for oil could also feature in the talks.

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