Iran’s return to the oil markets may lower India’s energy bill, widen sourcing options: Experts

India could benefit from lower crude oil prices and greater energy security if Iranian oil returns to global markets following the easing of US sanctions. Experts said the development would expand sourcing options for the world's third-largest oil importer.

"Iranian oil will start flowing into the global supply system and once it starts flowing into the global supply system, it pushes the prices down, which is good for us," Narendra Taneja, global energy security expert, said.

The US has partially lifted sanctions on Iranian oil exports for 60 days following recent negotiations with Tehran, raising expectations that more Iranian crude could enter international markets if a broader agreement is reached.

For India, which imports more than 85% of its crude oil requirements, additional supplies from Iran could help moderate oil prices while providing refiners with another sourcing option at a time of heightened geopolitical uncertainty.

More options for Indian refiners

Taneja said the biggest advantage for India would be diversification rather than discounted oil.

"We have one more option now," he said, adding that India's long-standing strategy has been to diversify crude purchases across multiple geographies rather than depend on a handful of suppliers. He noted that expectations of steep discounts on Iranian crude may be misplaced.

"The heavy discount was not part of the oil dictionary for India before the Ukraine war," he said.

Echoing the potential benefits for India, Ranen Banerjee, Partner and Leader, Economic Advisory, PwC India, said Iranian crude could emerge as an attractive option for Indian refiners if sanctions are fully lifted.

"There are several dynamics in the decision-making of refiners, as well as economic compulsions, that will decide the mix of oil imports into India. Iranian crude is very well suited for Indian refineries and, hence, technically it will be a process-efficient replacement. The other advantage over Russian crude is the transportation cost, as the crude has to traverse a much shorter distance," Banerjee said.

He added that Iran has historically offered favourable credit terms to India and could also support bilateral currency settlements.

"Another advantage could be bilateral currency settlements of the purchases, with Iran becoming a lucrative market for other commodities and services exports. However, the procurement mix will also depend on balancing trade with Russia. Given India's other imports from Russia and the need to settle in rouble-rupee, which saves precious forex, this will also have a bearing on procurement volumes," he said.

According to Taneja, oil purchasing decisions are largely driven by overall economics, including crude prices, shipping costs and insurance expenses, rather than the country of origin alone.

Geographic proximity favours Gulf suppliers

Iran's proximity to India could also improve the economics of crude imports. For example, shipping crude from the US can take up to 60 days, while Iranian cargoes can reach Indian ports in about five days, significantly reducing freight and insurance costs.

“The modern Indian refineries are capable of processing Iranian crude without major modifications, making a potential return of Iranian supplies operationally feasible,” Taneja said.

According to him, the volatility in oil markets is likely to persist as negotiations involving Iran, the US and regional stakeholders continue.

“The crude prices will gradually soften if Iranian, Iraqi, Saudi and Venezuelan supplies flow more freely into global markets,” he said.