The oil market is in ferment once again. The latest US assault in the form of ending Iran oil waivers granted to India and seven other countries comes into full force from May 2nd. This implies that countries who until now were able to buy Iranian oil without facing any form of US sanctions might face US strictures if they do so.
Oil has perennially been an issue hotly contested in global geopolitics. Trump administration’s policies related to Venezuela and Iran reflect this. By imposing unilateral sanctions on these two countries, the policies have not only affected unfriendly exporters like Iran, but also friendly importers, including India.
For starters, the decision comes at a time where the price of the Indian crude basket is rising and the country is in the middle of the largest election in the world. On Monday, brent crude touched a price of $71.84 abarrel. This poses a two-pronged problem for the refiners; where refiners not only have to scramble to find alternatives to Iranian oil, but also deal with the resulting volatility in international crude prices.
To emphasize on the importance of Iranian exports to India, two points could be considered in the context. First, of the 220.4 million tons of crude oil imported by India in 2017-18 , Iranian exports constituted 10 % of the oil imports. Secondly, the other big concern is that other crude suppliers such as Saudi Arabia, Kuwait, and Nigeria do not offer an attractive pricing options such as Iran, which includes a 60-day credit line, free insurance and shipping.
The table below depicts the top 10 countries importing crude oil to India during 2018.
| Export countries | Oil exported | Growth (% since 2014) |
|---|---|---|
| Iraq | $23 billion | 43.7 |
| Saudi Arabia | $21.2 billion | -19.6 |
| Iran | $13 billion | 36.7 |
| Nigeria | $9.6 billion | -35.4 |
| United Arab Emirates | $8.9 billion | -23.8 |
| Venezuela | $7.4 billion | -43.4 |
| Kuwait | $5.7 billion | -55.9 |
| Mexico | $3.7 billion | 35.5 |
| Angola | $ 3.4 billion | -37.2 |
| United States of America | $2.8 | 0 |
Crude Oil Imports By Countries; Data sourced from International Trade Centre (Trade map)
Further, Iran holds significance not just due to economic considerations, but also because it is an important partner for India, geopolitically. For instance, the access Iran provides to India in Central Asia and Afghanistan has both political and economic advantages. The Chabahar port is a classic example.
However, it would do India good to worktowards diversifying its basket of supplier base and also invest in increasing its domestic sources of energy supplies to shield against the perennially volatile oil market. One way to do that would be to open up the renewable energy sector for more investments that will help in curtailing the dependence on oil from the global market and help in meeting the country’s domestic needs.
India Outbound
April 29, 2019
source https://indiaoutbound.org/india-needs-to-prepare-for-life-without-iranian-oil/
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