Port Wings, 16 May 2018:
Though the Union Minister Dharmendra Pradhan said that it was too early to predict the impact of U.S. sanctions on imports of Iranian oil into India, the decision has set many balls rolling in various departments.
Speaking to Reuters during a visit to the United Arab Emirates on 12 May, the Minister said he was “a little bit concerned” about the impact of an oil price rise on consuming countries but that he did not think oil supply will be an issue.
Despite his words of caution on foreign soil, back home situation is very different and the senior bureaucrats are burning midnight oil to wade through the impending crude oil crisis that too in the year of elections.
The concerns about the potential impact from US imposing fresh sanctions on Iran and cascading effects on its trading partners, is very clear in the minds of the Union Government.
It is a fact that Iran is the third largest producer of crude globally and regarded as major player in driving up crude prices.
Under the terms of the Iran nuclear deal signed by the Obama administration in 2015, Iran had agreed to limit its sensitive nuclear activities, and in turn was allowed, among other things, to sell oil in the international market. The US had signed that deal in collaboration with UK, France, China, Russia, Germany and the EU.
However, few days ago, US President Trump pulled out of the deal unilaterally, citing that the agreement was not stringent enough to deter Iran from pursuing hostile nuclear development. Also, the US has threatened to impose fresh and powerful sanctions on Iran, hoping that economic pain would compel Iran to restrain notorious non-compliance.
The action has created ripples in the international oil market as fresh sanctions could reduce the supply of crude by the country. Already, Brent crude has crossed $75 per barrel and some feel it could climb as high as $100 per barrel over the next few months while others view current levels to be unsustainable.
According to the US, the old deal was ill-negotiated, had many loopholes, and inspection provisions lacked adequate mechanisms to prevent, detect, and punish non-compliance. Iran on the other hand, has accused US of imposing many other secondary sanctions which violate the deal terms.
According to media report, since the sanctions were lifted in 2015, Iran ramped up its crude oil production and expanded production capacities from 1 million barrels per day (mbpd) to almost 3.8 mbpd by March 2018.
US’s exit from the nuclear deal and re-imposition of sanctions poses a substantial impact on the Iranian oil and shipping sectors. In other words, the decision will impact mainly India and China, who are the top trading partners for Iran.
India and China are the two major importers of crude from Iran, accounting for almost 30 percent of the Iranian crude production. India imports nearly 80 percent of its crude requirement from international markets. If sanctions are imposed, Indian companies might have to look for alternate supplies to compensate supplies. It is indeed a bad news for oil marketing companies in India because of increased pressure on margins.
However, there are still time to see the real impact of the US decision on Iran, and India should brace for uncertain future as far as the crude imports are concerned.