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Saudi & India in Oil Deal After Iran Cuts Supply

Source: Reuters 7/26/2011, Location: Middle East

Top exporter Saudi Arabia has struck deals to sell 3 million barrels more oil to India in August, stepping into the vacuum created by regional rival Iran after it cut supply to New Delhi. The sale could stoke simmering tension between Riyadh and Tehran over oil policy. Saudi sources say the kingdom is not actively seeking to wrest market share from the Islamic Republic, but with Brent at over $100 a barrel Riyadh has taken a $300 million (183 million pounds) slice of Iran's oil sales to India.

"If Iran can't get the payment issues resolved with India we will send them supplies and we have already alerted them to that," said a Saudi government advisor. Iran has already criticized Saudi Arabia for boosting oil supply unilaterally after Tehran-led opposition defeated a Saudi proposal for a coordinated supply increase at an OPEC meeting in June. Iran told Indian refiners last week it would cut oil shipments amounting to about 400,000 barrels per day (bpd) in August. Tehran aims to pressure the refiners into settling $5 billion in debts for crude already supplied and to find a way around U.S. and UN sanctions that make trade with Iran difficult.

Iranian oil normally meets about 12 percent of India's total demand of 3.46 million bpd.

Saudi Arabia approved the extra sales for August, sources with direct knowledge of the deal said on Tuesday. The amount covers a quarter of what Iran exported on a daily basis to India before the halt. The sources at Indian refiners Hindustan Petroleum Corp (HPCL), Bharat Petroleum Corp (BPCL) and Essar Oil said that state oil giant Saudi Aramco had confirmed it would supply each of them with an additional 1 million barrels of crude in August. The crude would be a mix of Arab Light, Arab Heavy and Arab Medium, another source said.

"By purchasing crude from the Saudis, India is sending out a strong message to Iran that it can diversify away from Iran if the need arises," Praveen Kumar at FACTS Global Energy said.

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