New Delhi: he temporary exemption granted to India and seven other countries from US sanctions on purchase of Iranian oil will end shortly, US secretary of state Michael R. Pompeo announced on Monday. The removal of Iranian oil from India’s energy sourcing basket may have major implications given that India has been a major importer of Iranian oil. India imported 23.5 million tonnes in 2018-19 from Iran. In 2017-18, of the 220.4 million tonnes of crude imported by India, more than 10% was from Iran. Mint explains the challenges ahead for India.
Impact on India
India energy needs are primarily met from imports. India will need to come up with options that offer terms as attractive as those offered by Iran, including 60-day credit, free insurance and shipping. This comes in the backdrop of ongoing general elections. The prices in the Indian basket of crude, which represents the average of Oman, Dubai and Brent crude, have been firming up. Any spike in global crude prices will impact India’s oil import bill and trade deficit. Every dollar increase in the price of oil raises the import bill by around ₹10,700 crore on an annual basis.
India may increase its dependency on oil imports from Saudi Arabia and the United Arab Emirates (UAE) at a time when the West Asian nations plan to increase their investments in India. Pompeo said the US had “extensive and productive discussions with Saudi Arabia, the UAE, and other major producers to ease this transition and ensure sufficient supply". In addition, US shale production may offer India a reprieve, with the world’s third largest oil importer upping its bets on American supplies. India has started to source US oil and has been a market for its liquified natural gas, with Indian firms investing $4 billion in US shale gas assets.
Finding an alternative supplier at competitive terms quickly for India may be tough. The global oil markets are in a tight position. The Organization of the Petroleum Exporting Countries (Opec), which accounts for about 40% of global production is continuing with the supply cuts and the US administration is also imposing sanctions on Venezuela’s state-owned oil firm Petrуleos de Venezuela SA. India also needs to get its domestic production act right. At a time when its demand is growing, oil imports increased over 25% to $109 billion in 2017-18 from a year ago.