Aramco closes supply tap for Indian refiners, new oil barrels to cost more

NEW DELHI: Saudi Aramco has informed Indian refiners that it will not supply them crude until further notice following attacks on its critical East-West pipeline, people familiar with the matter said. While finding replacement barrels is not expected to be difficult, rising prices and higher freight costs are emerging as the bigger challenge for Indian refiners, they said.

The pipeline, which was shut late last week after allegedly being attacked by Iraqi militia drones, had been the kingdom’s primary alternative route for supplying crude since the maritime chokepoint Strait of Hormuz was disrupted.

Oil prices have soared since, with Brent futures trading around $108 a barrel on Wednesday.


Spot Cargoes Sold to Traders

Aramco, which has supplied about 9% of India’s crude imports since the beginning of the war, has stopped all supplies to the country through both the Red Sea and the Strait of Hormuz, the people said. Supplies through Hormuz had already fallen to a trickle before the pipeline attack.

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Saudi Arabia has, however, sold some spot cargoes to traders expected to deliver small volumes to Indian refiners through Hormuz, the people said. The risk-taking traders are likely to follow the same modus operandi they have used in recent weeks, buying Iraqi crude at a deep discount and moving it through the strait to the Gulf of Oman, where they transfer the cargoes ship-to-ship for onward delivery to Indian and other customers.

Aramco typically does not sell crude in the spot market. It supplies India and other customers under annual term contracts at official selling prices.

India is currently not receiving its contracted term supplies from Saudi Arabia.

Indian refiners are confident of securing alternative barrels but will have to pay more as oil benchmarks have risen and discounts on Russian crude have disappeared, the people said. Spot-market prices can also rise much faster than futures prices during supply disruptions.

Analysts have warned that refiners could face higher crude costs and freight rates as they replace Saudi supplies. Tanker rates are already near record highs, adding to procurement costs, while dwindling global inventories are putting further upward pressure on oil prices.

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Indian refinery executives are also concerned that the conflict involving Saudi Arabia and the Iran-aligned Houthis could intensify, increasing risks to energy infrastructure and making supplies less predictable.

Saudi Arabia has long been one of the world’s most influential oil suppliers, with about a 10th of global production capacity and the ability to adjust output in response to market conditions. Keeping Saudi crude off the global market for an extended period, particularly when global inventories are already low, could add to uncertainty in the oil market.