India has so far held back from banning fuel exports despite a supply squeeze triggered by the Iran war, due to several constraints including the logistical challenge of moving and storing surplus fuels, the risk of undermining exporters’ contractual commitments and the need to waive import taxes for an export-only refinery, people familiar with the matter said.
Reliance Industries is the country’s main fuel exporter and operates two refinery units, one of which is dedicated entirely to exports. Nayara Energy is also a major exporter, although it has faced significant challenges since the EU imposed sanctions last year on the partly Russian-owned company.
China and Thailand have already curbed exports of petrol and diesel to secure supplies for domestic use, after the effective closure of the Strait of Hormuz disrupted crude and fuel flows to several countries.
Before India can impose any export ban, state-run fuel retailers would have to arrange purchases from exporting refiners, an industry executive said. If an exporter were forced to rely solely on its own storage for surplus fuel, tanks would begin to overflow within days, creating a new logistical problem. Offtake arrangements, logistics and storage would therefore need to be planned in advance so that refined products can be smoothly redirected to domestic demand centres, he said.
Exporters also have contractual commitments with overseas buyers, such as commodity traders or oil marketers, and would not want to breach these agreements because of the financial and reputational costs, another executive said.
However, if the government were to impose a ban, exporters could declare force majeure on their customers, he added.
If a refinery unit is dedicated solely to exports, it would require a waiver of import taxes to supply the domestic market-an option that would involve the government foregoing tax revenue, he said.
Greater access to Russian crude in recent days has helped ease the supply situation for Indian refiners, although it cannot fully replace the lost Gulf volumes. In any case, domestic refiners generally prefer selling to state fuel retailers because domestic prices are linked to international rates, ensuring better realisations. However, in the past they have avoided selling large volumes through their own retail networks when pump prices were effectively capped, choosing instead to export.
A government official recently said the ban had not been imposed because India did not want to add to turbulence in global markets. Meanwhile, refining margins have widened sharply since the start of the Iran war, boosting potential earnings for exporters.
