Iran sanctions to impact Indian refiners negatively, especially MRPL: Moody’s

New Delhi: US economic sanctions on Iran, which will require other oil importing countries to stop all oil imports from the country, will put pressure and restrict earnings of India refiners, global credit rating agency Moody’s said on Thursday.

“Assuming a complete cessation of imports of crude oil from Iran and a $3 per barrel negative impact on earnings because of that, on the barrels being substituted, we estimate the total decline in earnings for the Indian refiners to be about $400-$500 million, against combined EBITDA of about $10 billion for the three largest state-owned Indian refiners in the fiscal year ended March 2018. Thus we expect the impact on the refiners’ credit metrics to be limited,” Moody’s said in a report.

India is among the largest importers of Iranian crude and accounted for around 30 per cent of total crude exports from Iran during April to August 2018. Cumulatively, India’s crude oil imports from Iran in the first five months of the current fiscal increased 44 per cent to 13.32 Million Tonne, as compared to 9.26 MT imported in the corresponding period a year ago.

Currently, Indian Oil Corporation (IOC), Bharat Petroleum (BPCL), Hindustan Petroleum (HPCL) Reliance Industries (RIL), HPCL-Mittal Energy Limited (HMEL) and Mangalore Refinery Petrochemicals (MRPL) import Iranian crude. According to Moody’s, most of these refiners, with the exception of MRPL source about 5-10 per cent of their crude requirement from Iran.

The report said that MRPL, a wholly-owned downstream subsidiary of Oil and Natural Gas Corporation (ONGC), has the highest exposure to Iranian crude among all other India refiners. MRPL met 38 per cent of its crude oil import requirement from Iran during Fy 2017-18.
Iranian crude works economicfor Indian refiners as it is usually sold at a discount of up to $2-$4 per barrel below other Middle Eastern crude oil grades. Iran's national oil company, National Iranian Oil Company, also subsidizes the freight costs for crude oil delivery and offers extended payment terms to buyers.

“The sanction on Iran, which is an important supplier of crude to your company, is also an immediate threat to profitability. The reduction in supplies of crude from Iran following sanctions will have an impact on crude prices globally and will affect your company also in the short-term,” MRPL said in its annual report for 2017-18.

Between April and August 2018, India imported 94.9 MT of crude, of which around 14.4 per cent came from Iran. Iranian crude oil exports to India accounted for 21 per cent of Iran's crude oil exports in fiscal year ended March 2018 and 30 per cent from April to August 2018.

India's oil import from Iran in value terms doubled to $6.82 billion in April-August 2018 from $3.27 billion worth of imports in the corresponding period last year.

News agency Bloomberg, on Wednesday reported India refiners - IOC, BPCL, Nayara energy -- have not asked for any Iranian cargoes for loading in November, while MRPL has not made any nominations yet, but may do so after November.