New Delhi: In what may further escalate the US-China trade war and add to the growing uncertainties in the global energy markets, the Donald Trump administration on Wednesday imposed sanctions on Chinese firms transporting Iranian oil.
Speaking at the United Against Nuclear Iran’s 2019 summit, US secretary of state Michael Richard Pompeo in New York said, “Today we are imposing sanctions on certain Chinese entities for knowingly transporting oil from Iran contrary to United States sanctions."
“Importantly, we’re also imposing sanctions on the executive officers of those companies as well. And we’re telling China and all nations, know that we will sanction every violation of sanctionable activity," Pompeo added.
India, the world’s third-largest oil importer, was among Iran’s top oil buyers with imports of 23.5 million tonnes in 2018-19. With the US conditional waiver for Iranian oil imports to eight countries, including China and India, expiring on 2 May, India stopped all oil imports from the Persian Gulf nation.
“The United States will intensify our efforts to educate countries and companies on the risks of doing business with IRGC (Islamic Revolutionary Guard Corps) entities, and we will punish them if they persist in defiance of our warnings," Pompeo said.
Pompeo recently visited Jeddah, Saudi Arabia and Abu Dhabi, United Arab Emirates, post the drone attacks on Saudi Arabian Oil Co, or Saudi Aramco’s facilities that caused the biggest-ever disruption in global crude oil supplies. Consequently, automobile fuel prices in India have been rising.
The National Democratic Alliance (NDA) government has also been holding conversations with the Donald Trump administration on the issue of energy imports from sanction-hit Iran.
“And by sanctioning the regime’s petroleum sector, we have cut off Iran’s number one source of revenue. More than 30 nations have brought Iranian oil imports to zero. And going forward, our sanctions on the Iranian oil sector will deprive the regime of as much as $50 billion each and every year," Pompeo said.
Tensions have been escalating in the Persian Gulf due to events such as alleged attack by Iran on oil tankers in international waterways, with a fifth of global oil supplies passing through the strategic Strait of Hormuz. The US has also alleged that Iran shot down an American UAV and was behind the drone attacks on Saudi Aramco.
Pompeo said Greece had refused to let an Iranian supertanker carrying oil to Syria refuel in its ports.
The unfolding events have raised the spectre of a spike in transportation fuel prices in India with traders worldwide, speculating if oil prices will cross the $100-mark yet again. Any sudden increase in global prices will affect India’s oil import bill and its trade deficit. Every dollar increase in the price of oil raises the import bill by ₹10,700 crore on an annualised basis. India spent $111.9 billion on crude oil imports of 207.3 million tonnes in 2018-19.
A record gain in crude oil prices could further aggravate India’s fiscal situation and make it tougher for the government and the central bank to effectively combat a slowdown in economic growth. India is particularly vulnerable as it imports more than 80% of its oil requirement and around 48% of natural gas.
The cost of the Indian basket of crude, which averaged $47.56 and $56.43 a barrel in FY17 and FY18, respectively, was $59.35 in August, according to data from the Petroleum Planning and Analysis Cell. The average price jumped to $63.61 a barrel on 24 September. The Indian basket of crude represents the average of Oman, Dubai and Brent Crude.
India has oil reserves equivalent to at least 75 days of net imports. This will increase further to 87 days once the second phase of Indian Strategic Petroleum Reserves, which aims to add 12 days of crude storage, is operational. This includes refineries’ inbuilt capacity of 65 days. India has even been promised assistance by Russia’s largest oil company Rosneft PJSC.