Amid tensions with Saudi Arabia over oil production cuts, India has asked its state refiners to review contracts they enter into for buying crude oil from the Middle East nation and negotiate more favourable terms, a top official said. Keen to break producers cartel dictating pricing and contractual terms, the government has told Indian Oil Corporation NSE 1.42 % (IOC), Bharat Petroleum Corporation Ltd
NSE 2.21 % (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) to look for oil supplies from outside the Middle East region and use collective bargaining power to get favourable terms.
India imports 85 per cent of its oil needs and is often vulnerable to global supply and price shocks. When oil prices started to rise in February, it wanted Saudi Arabia to relax output controls but the Kingdom ignored its calls. This has led to the Indian government now pressing for diversification of the supply base.
“Traditionally, Saudi Arabia and other OPEC producers have been our mainstay suppliers of crude oil. But their terms have often been loaded against the buyer,” the official with direct knowledge of the discussions said. For one, Indian firms buy two-third of their purchases on term or fixed annual contracts. These term contracts provide assured supplies of the contracted quantity but the pricing and other terms favour only the supplier, he said.
“While buyers have an obligation to lift all of the contracted quantity, Saudi and other producers have the option to reduce supplies in case OPEC decides to keep production artificially lower to boost prices. Why should the consumer have to pay for the decisions of OPEC? If we commit to offtake, they should also supply no matter what,” he said.
In recent months, India has bought more oil from the US and from newer sources such as Guyana, which has a large Indian diaspora. Due to its geographical proximity, the Middle East can, however, supply cargoes in less time and at low freight rates.
