The Iran sanctions, which will kick in on November 5, are credit negative for Indian refiners as their supplier concentration will increase after the sanctions take effect, according to a report by Moody's Investor Services.
Mangalore Refinery & Petrochemical Ltd, a 71.63 percent-owned subsidiary of Oil and Natural Gas Corporation Limited (ONGC), has the highest exposure to Iranian crude among the Indian refiners, the report said.
Indian Oil Corporation, Bharat Petroleum Corporation India, Hindustan Petroleum Corporation and Reliance Industries are among the major oil refiners of the country.
The rating agency said the exposure of the Indian refiners to oil price volatility is likely to increase if at all they turn to the spot market
On May 8, US President Donald Trump announced the reimposition of the sanctions on Iran’s oil sector. The news came as a blow to India, the world's second largest consumer of oil.
India is one of the largest buyers of crude from Iran - accounting for about 30 percent of total crude exports from the country in between April and August this year. During the same period, the oil refiners sourced around 14 percent from Iran out of the total 80 percent crude feedstock from other countries.
"We expect Indian refiners will either have to significantly reduce or completely stop importing crude oil from Iran over the next month or so. As a result, Indian refiners will increase dependence on the remaining Middle Eastern crude oil suppliers (mainly Saudi Arabia and Iraq), aside from Iran," Moody's said in a report.
Moody's estimated that the total decline in earnings for the refiners will be by around $400-$500 million.
Have you signed up for Primo, our daily newsletter? It has all the stories and data on the market, business, economy and tech that you need to know.