Why in news?

As the West Asia conflict chokes global oil supplies and pushes prices sharply higher, the US is considering temporarily removing sanctions on Iranian crude oil already at sea — a move that could significantly benefit India, once a major buyer of Iranian oil.

What’s in Today’s Article?

• Background: How Did We Get Here
• Why This is Strategically Significant?
• Can India import Iranian oil
• India-Iran Oil Trade: A History of Sanctions, Deals, and Disruptions

Background: How Did We Get Here?

• In response to the US-Israel offensive that began on February 28, Iran effectively choked vessel movements through the Strait of Hormuz.
• The Strait accounts for one-fifth of global oil and LNG flows.
• Its effective closure, combined with attacks on energy infrastructure across the region, has caused a sharp surge in global oil prices.
• While some oil is being rerouted through alternative passages, the bulk of supply through the Strait has gone offline.

Why This is Strategically Significant?

• Amid rising oil prices due to the West Asia conflict, the US is considering easing sanctions on Iranian crude already at sea to stabilise supply.
• This would be a temporary and partial unsanctioning, not a permanent policy shift.
• The Iranian oil, if released, would primarily divert supplies that were previously heading to China — redirecting them to global markets.
• It mirrors the earlier month-long universal waiver on sanctioned Russian crude, suggesting the US is willing to use sanctions policy flexibly as an economic weapon.

Can India import Iranian oil

• With the US weighing a temporary suspension of sanctions on Iranian crude already at sea, the big question is — will India seize the opportunity?
• Industry analysts say Indian refiners are well-placed to act fast if a waiver is announced.
• India's Historical Ties with Iranian Oil
  • India was once a major buyer of Iranian crude, importing significant volumes of Iranian Light and Heavy grades.
  • Key reasons: strong refinery compatibility and favourable commercial terms (discounted pricing).
  • Following US sanctions tightening in 2018, India stopped Iranian imports from May 2019, replacing those volumes with Middle Eastern, US, and other grades.
• Current Iranian Oil Availability
  • Estimated 170 million barrels of Iranian crude currently on the water, including floating storage and in-transit cargoes (Kpler data).
  • A portion of this remains unsold — representing potential incremental supply if sanctions ease or enforcement weakens.
  • This is a significant swing factor in global crude flows.
• Can Indian Refiners Handle Iranian Crude
  • Indian refiners retain the ability to re-integrate Iranian barrels with minimal operational adjustments, given:
    • Prior experience in processing Iranian grades
    • Presence of established trading setups
  • The transition would be similar to how India rapidly scaled up Russian crude imports after Western sanctions created an opportunity.
  • India's rapid pivot to Russian oil after Western sanctions offers a clear blueprint for Iran. Analysts say a similar rapid increase could be seen with Iranian crude if conditions align.
• India's Oil Import Vulnerability — The Bigger Picture
  • India depends on imports for over 88% of its crude oil requirement.
  • 2.5–2.7 million bpd of India's crude imports — roughly half of total oil imports — have transited the Strait of Hormuz in recent months (longer-term average: ~40%).
  • The Strait's effective closure has made diversification of supply sources — including potential Iranian crude — an urgent energy security priority for India.

India-Iran Oil Trade: A History of Sanctions, Deals, and Disruptions

• India has not imported any Iranian oil since May 2019, when the US sanctions waiver for major Iranian crude buyers expired.
• Complying was non-negotiable — non-compliance would have exposed Indian oil companies to US secondary sanctions.
• Pre-Sanctions Era: Iran as a Key Supplier
  • In 2009-10, India imported 22.1 million tonnes of Iranian crude — 14.4% of India's total oil imports of 153.6 million tonnes.
  • Iran was a regular and significant supplier even during earlier, milder sanctions periods.
  • As international sanctions tightened — hitting payment channels and logistics — import volumes steadily fell during 2010-15.
• The Innovative Rupee Payment Mechanism (2012–2015)
  • During the peak sanctions period, India and Iran devised a workaround:
    • Indian refiners paid 45% of oil payments in rupees into accounts held by Iranian banks in India.
    • Iran used these rupees to buy Indian goods — effectively a barter-linked arrangement.
    • The remaining 55% was deferred until sanctions were lifted.
    • Once the Iran nuclear deal (JCPOA) formally lifted sanctions, all pending payments were cleared.
    • Major Indian buyers during this period: Essar Oil (now Nayara Energy) and MRPL (Mangalore Refinery and Petrochemicals).
• The Post-Nuclear Deal Boom (2015–2017)
• With sanctions lifted, Indian imports surged sharply:
  • 2015-16: 13.6 million tonnes
  • 2016-17: 27.1 million tonnes — Iran became India's third-largest oil source, behind only Saudi Arabia and Iraq
• Iranian oil accounted for 12.6% of India's total crude imports of ~215 million tonnes in 2016-17.
• Iran sweetened the deal by offering Indian refiners discounted shipping and extended credit periods.
• The Second Decline: Trump, Tensions & Diversification (2017–2019)
  • Volumes began falling again from 2017-18 (22.6 million tonnes) due to three factors:
    • India-Iran tensions over development rights of a gas field in Iran.
    • India's deliberate diversification of oil supply sources.
    • Trump's withdrawal from the JCPOA and reimposition of sanctions — the defining factor.
  • A US waiver was granted to major buyers, but it expired in May 2019. Imports crashed to just 2 million tonnes in 2019-20 and went to zero thereafter.