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NEW DELHI, Feb 12 (Reuters) - HPCL, India's third-biggest buyer of Iranian crude in the current fiscal year, plans to slash its purchases and replace them with Iraqi oil as sanctions on Tehran bite harder, a source with direct knowledge of the refiner's plans said.
The move is in line with a broader goal set by India, the world's fourth-largest oil importer and Iran's second-biggest client after China, to cut deliveries from Tehran, and comes as a tough new U.S. condition on funding such purchases has been imposed.
State-run Hindustan Petroleum Corp Ltd (HPCL) had an annual deal with Iran to buy 40,000 barrels per day (bpd) and an option for another 20,000 bpd for the year ending March 31. It has lifted about 44,000-46,000 bpd in the current year.
HPCL aims to have a contract for only token volumes from Iran in the year that starts in April, the source said, partly because of growing concerns insurance for installations, including refineries, handling Iranian crude might be hard to find because of the tighter sanctions.
"Volumes from Iran depend on the impact of sanctions. If sanctions are eased or if the government helps on the insurance issue, then Iran imports may go up. But at this moment no one wants to take the risk," the source, who is not authorised to speak to the media, told Reuters.
HPCL wants to increase its annual deal with Iraq's State Oil Marketing Organisation (SOMO) to about 60,000 bpd in the year starting in April from 45,000 bpd in the current year, the source added.
HPCL may buy some Basrah crude volumes through stakeholders other than SOMO, the source added.
Indian refiners have been compensating for lost Iranian volumes with crude from Iraq and Latin America. Iraq replaced Iran as the country's No. 2 supplier after Saudi Arabia in the year that ended in March 2012, as Tehran ceded a position it had held for five years.
Sanctions on Tehran aimed at curbing its nuclear program have also prompted its other major Asian clients -- China, Japan and South Korea -- to cut imports and secure a waiver which allows them continued access to the U.S. financial system. Iran says its nuclear programme is entirely for peaceful purposes.
Refiners are already finding it difficult to import because of an EU ban on insuring vessels carrying Iranian oil. Moreover, under new U.S. sanctions from Feb. 6, payments for Iranian crude must be held in a bank account in India in rupees, which are not freely traded on international markets.
India is aiming to cut deliveries from Tehran by 10-15 percent in the year beginning in April after reductions of about 15 percent in the current year.
Indian refiners, both private and state-run, have already cut imports by about 19 percent in April-December 2012 to around 270,700 bpd. HPCL shipped in about 17 percent of that, with fellow state-run refiner MRPL and privately-owned Essar the top buyers.