Amid threat of US sanctions, India to reduce Iranian oil imports

India to reduce monthly crude loadings from Iran to nearly half in the month of September and October following a boost in loadings in April-August, hoping to secure waivers amid the sanctions. Trump administration is preparing to impose sanctions on Iran’s shipping, oil and gas trade along with foreign transactions and is demanding countries and entities to cut oil imports from Iran to “zero” by November 4.

Secretary of State Mike Pompeo said “Make no mistake about it, come November 4 (and) there will be a fundamentally different set of rules with respect to anyone who deems it necessary to engage in economic activities with the Islamic Republic of Iran”.

Washington wants all countries to halt oil imports from Iran before November 4 if they want to avoid US penalties.https://t.co/Su9voSJMun

— News18 (@CNNnews18) September 15, 2018

India is keen on winning waivers to safeguard its wider exposure to the US financial system. In absence of which India will have no options, but to halt imports from Iran.

Indian refiners are informed to prepare for drastically reducing the imports to zero, said Reuters. Some refiners have already exhausted or front loaded their term contract to a large extent, which allows them the flexibility to go to zero if required, or until clarity on waivers emerge; Amrita Sen Chief Oil Analyst at Energy Aspect told Reuters.

Indian oil refiners have already given the October loading plans to the National Iranian Oil Co (NIOC), sources familiar with the loading schedule said. Excluding Reliance and HMEL, which do not have term contracts with Iran, refiners will altogether lift approximately 73 percent of their fixed contract volume from Iran, as seen from the loading data.

India depends on imports for nearly 80% of its crude requirements. After Saudi and Iraq, Iran is the third largest crude oil supplier to India. Furthermore, Iran offers cheaper oil and extended credit terms. With record high oil prices prevailing in the country and weakening Indian rupee, a likely rise in cost of crude import due to the cut down on imports from Iran will add to the rising inflation and impact economic growth.

The US has offered their oil as a replacement, but it will come at a higher cost compared to Iranian oil. Further, switching to other suppliers will also affect the refiners who are set to process Iranian oil.

The economic sanctions may also have consequences for Chabahar port being developed by India. In addition, it may affect India’s interest in Caspian Sea reserves. The North South corridor, linking Caspian Sea and Indian Ocean, will enhance trade between India, Central Asia and Russia.

In the wake of recent developments, India should seek to balance its relationship with both US and Iran.