Iranian Oil Minister Bijan Zangeneh dismissed India’s threat to cut oil imports from Tehran amid a dispute over the development of the offshore Farzad-B gas field in the Persian Gulf.

According to Indian refinery sources, the state-run refiners, Indian Oil Corp. (IOC) and Mangalore Refinery and Petrochemicals Ltd. (MRPL), which are the largest buyers of Iranian crude, have decided to reduce imports from Tehran to 4 million tonnes per annum (mtpa) in 2017-2018 from 5 mtpa in the previous year.

Bharat Petroleum Corp. Ltd. (BPCL) and Hindustan Petroleum Corp. Ltd. (HPCL) will reduce oil imports from Iran by 0.5 mtpa each to 1.5 mtpa as India builds pressure on Iran to award the Farzad- B gas field to its discoverer, ONGC Videsh Ltd. (OVL).

Zangeneh was of the view that Iran was open to negotiations with the Indian side to boost cooperation, but stressed that Tehran would not accept the language of threat.

“We cannot enter deals under threats,” Zangeneh was quoted as saying by Iran’s Islamic Republic News Agency (IRNA).

“Using language of threats is not appropriate,” Zangeneh said, adding that, “There are a lot of customers for Iranian oil and their demand surpasses our export capacity.”

Iran has been selling crude at just over 1 million barrels per day (MMbbl/d) for the past few years, mostly to China, India, Japan and South Korea. Europe once accounted for purchasing roughly 400 Mbbl/d of Iranian crude. Greece, Spain, Italy, Turkey and South Africa were main customers of Iranian oil before sanctions were instituted on Tehran.

Meanwhile, after removal of sanctions, Iran has raised its crude production and exports by more than 1MMbbl/d.

Currently, India imports some 82% of crude oil for its domestic requirements. According to the latest International Energy Agency reports, at present, India imports around 3.78 MMbbl/d and produces 897,300 bbl/d.

Interestingly, around 62 % of India’s oil imports come from Saudi Arabia and other Middle Eastern countries such as Iran, Iraq and Kuwait.

India is Iran’s second-biggest oil buyer after China and was among the few countries that didn’t completely stop trading with Iran when Western sanctions were imposed on it in 2012 over its nuclear program.

A consortium led by OVL, the overseas investment arm of India’s state-owned ONGC, along with its partners IOC and Oil India Ltd., had discovered the Farzad -B gas field in the Farsi offshore block in 2008. Later in 2010, it submitted plans to develop the field, but could not obtain permission to develop the field due to U.S. and Western sanctions, and the block was put up for a fresh bid by Iran.

However, in 2016, when the international sanctions on Iran were lifted, the block evoked interest in many global investors, making India’s position uncertain.

The Farzad- B gas field is estimated to hold 21.7 trillion cubic feet (Tcf) of gas, of which 12.8 Tcf is recoverable.

Market analysts believe that the current dispute between India and Iran over oil has much more to do with expected trends in crude pricing and less to do with the delay on the terms of Farzad- B gas field.

Current global oil market trends suggest that India’s decision to cut oil imports from Iran may be good news for non-OPEC oil producers, especially those in the U.S. and African countries. But it will be too early to reach any conclusion. There are reports that Indian policymakers are considering taking risks buying crude from spot markets than stick to long-term contracts.

Meanwhile, OVL has revised its proposal to develop the Farzad- B gas block, and could potentially invest over $3 billion on the project.

N.K. Verma, managing director of OVL, told media on the sidelines of a recent energy conference in New Delhi that OVL sees Farzad-B output rising to range between 1 Bcf/d and 1.6 Bcf/d of gas in five years from startup.

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