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India Looks To Buy More Iranian Oil As Spat With Saudis Escalates

India is at the ready to purchase more Iranian oil immediately if U.S. sanctions on Iran are lifted, a government official has threatened in the latest escalation of the India-Saudi spat over crude oil.

India's refiners have already been instructed to purchase less crude oil from Saudi Arabia after a war of words between the two over oil policies. India has for months pushed its main suppliers-Saudi Arabia and Iraq-to ramp up oil production to keep oil prices manageable for the world's third-largest oil importer. The plea came after Saudi Arabia boosted oil prices by agreeing to voluntarily cut an additional million barrels per day on top of its production cut quota.

Saudi Arabia responded to India's call to action by raising its official selling price. Game on. India's next move was to tell its refiners to reduce the amount of oil purchased from Saudi Arabia in May-and indeed they did. India's refiners are set to purchase 36% less Saudi crude in May than previously planned.

Meanwhile, India's oil imports from the United States have climbed in recent months, catapulting the United States into position to become India's second-largest oil supplier behind Saudi Arabia.

India's purchases of oil from Saudi Arabia already dropped by 42% in February.  India's imports of Iraq oil also dropped-by 23%--in February, according to Reuters data. Some speculated at the time that India's lower purchases in February were because India was holding out for lower prices should OPEC decide to ease its production cuts. Related: UAE Presents Phenomenal Plan To Boost Its Position As Oil Hub

OPEC did, but not by enough to sink oil prices.

But India's plan to purchase more Iranian crude has flaws. One legitimate concern is that many industry analysts suspect that Iran is already producing and exporting a serious amount of crude oil-under the literal radar. This would leave only a modest amount for Iran to add to its exports should the U.S. sanctions be lifted. Others have suggested that India has already begun to import sanctioned Iranian crude oil under the assumption that trade with Iran will be allowed to continue.

India, which has complied with the U.S. sanctions on Iran, has been hard-hit by the sanctions that have limited its oil purchasing avenues, increasing its reliance on Saudi oil. Meanwhile, the world's largest oil importer, China, has continued to purchase Iran's oil despite the sanctions-at a deep discount, no doubt-giving it a leg up on its more compliant, Asian oil-buying competitor, India.

By Julianne Geiger for Oilprice.com

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Julianne Geiger

Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group. More