New Delhi: India and seven other countries will not be able to import cheaper Iranian oil without attracting US sanctions after May 1when the Donald Trump administration will end all the waivers. The US decision has jacked up global oil prices, which can potentially put the ruling BJP at a disadvantage in the latter stages of the ongoing general elections.
Oil topped $74 a barrel on Monday, its highest in six months on fears of shortage due to expected removal of supplies from Iran. Washington, however, said the sanctions, aimed at pressuring Iran to curtail its nuclear programme and renegotiate with US, will not hurt global oil supply.
“Today I am announcing that we will no longer grant any exemptions,” US Secretary of State Michael R Pompeo said in a briefing on Monday. “We are going to zero. We’re going to zero across the board,” he said. “We have had extensive and productive discussions with Saudi Arabia, the United Arab Emirates, and other major producers to ease this transition and ensure sufficient supply,” Pompeo said.
Washington had reimposed sanctions on Iran in November after pulling out of a 2015 nuclear deal between the Islamic Republic and six global powers. The US had granted waivers that allowed India and seven other countries to continue importing reduced quantity of Iranian oil for six months ending May 1.
Indian officials and oil companies’ executives said refiners have already made alternative supply arrangements for May and are lining up supplies for June. “There would be no supply disruption,” said an executive at Indian Oil Corporation, the largest refiner in the country. “Only effect that you would see is higher prices, and that is already visible.”
India is the second biggest customer of Iran and imported about 24 million tonnes of crude oil in 2018-19. Indian Oil — which imported 9 million tonnes of Iranian oil in 2018-19, the maximum for a refiner in the country — is seeking to source additional supply from Kuwait, Abu Dhabi, Saudi Arabia, the US, and Mexico by exercising the option to source additional volume from these suppliers with who it has annual term deals.
Mangalore Refinery (MRPL) and Bharat Petroleum (BPCL) are other key importers of oil from Iran.
Indian refiners hadn’t finalised the annual term deal for 2019-20 with Iran that usually begins in April every year. Officials said they were studying the US decision on waivers and its implications, but Monday’s announcement wasn’t going to be the end of negotiations between the two countries.
“This is not the end of the road,” said an official, indicating India hadn’t yet given up on Iran supplies that suits Indian refineries and come with longer 60-day credit period and cheaper freight. “We will continue to engage with US on the matter.”
Another official said the strategic Iranian port of Chabahar that India is helping build remains unaffected by Monday’s US announcement.
Rising crude oil rates push prices of petrol and diesel in the international market to which domestic rates are linked. Higher oil prices also weaken rupee as India imports 84% of its oil needs. The combined effect could lead to higher domestic rates of petrol and diesel in the poll season, until state-owned oil marketers decide to absorb the higher rates.
Theoretically, state companies are free to price fuels according to international rates, but they come under pressure from the government to keep rates low, particularly during polls. Domestic fuel rates have changed little in a month while international crude oil prices have jumped $7 a barrel, or about 10%, in the same period.