While India officially says it’s prepared to comply with Monday’s US move to choke off Iran’s oil exports, sources in economic circles say a major concern is that substitute suppliers Saudi Arabia, Kuwait, Iraq, Nigeria and the US don’t accept rupees in payment as Iran has done.
With diversification, US dollars will be required, which could increase the pressure on the currency, further widening the trade and current account deficits.
“The government has noted the announcement by the US government to discontinue the Significant Reduction Exemption to all purchasers of crude oil from Iran,” ministry spokesperson Raveesh Kumar said. “We are adequately prepared to deal with the impact of this decision”
India relies on imports for about 80% of its crude oil requirement and 40% of natural gas. Almost 9-10% of crude oil imports come from Iran, making India Iran’s second largest buyer after China.
However, since November when the US sanctions were levied, India has almost halved its purchases from Iran. It has been diversifying. According to market players, Indian refiners are increasing their planned purchases from the Organization of the Petroleum Exporting Countries and Mexico to make up for the loss of Iranian oil, The Indian Express reported.
Two years ago, for the first time, India imported crude oil from the US. Indian companies have also contracted 8 million metric tonnes per annum of liquefied natural gas and ethane condensate from the US. They have further acquired stakes in 27 countries including Australia, Brazil, Canada, Colombia, Indonesia, Iraq, Kazakhstan, Libya, Mozambique, Nigeria, Russia, and the UAE.
The refinery in Mangalore in Karnataka was dealing with Iran crude exclusively. This calibration will now have to be changed to deal with crude from another region. This may have a cost impact as well as disrupt supply for a bit. But the Donald Trump administration has assured that the exemption of the development of the Chabahar port project, in southeastern Iran, will continue. The port project is spared because it is for the development of Afghanistan.
The US is working with India to increase its imports of oil from Saudi Arabia and UAE
Washington announced Monday a May 2 end to US waivers that currently permit countries including India, China, South Korea and Turkey to buy Iranian crude oil. The US move amounts to a bid to reduce Iran’s oil exports to zero.
The move targets the Islamic republic’s main economic earner and adds to sanctions pressure that has been intensified under Trump, who has withdrawn his country from a 2015 international agreement aimed at curbing Iran’s nuclear program.
According to Indian news media, Washington directly conveyed that since it had helped India combat terrorism after the Pulwama attack, India was expected to comply with President Donald Trump’s commitment to disrupt Iran’s terror network.
Washington believes that the Iranian regime uses the money from oil imports to support terror groups like Hamas and Hezbollah, and to continue its missile development, in defiance of United Nations Security Council resolution 2231.