No more Iranian oil for India from May 2; here's why it could make prices soar

India purchases about 9.4 % of its crude supplies from Iran at a discounted rate and had been working to reduce this to 5 % by finding alternate sources. 
Representational image (File Photo | Reuters)
Representational image (File Photo | Reuters)
Updated on
2 min read

NEW DELHI: The Trump administration has said it will end waivers to India, China and six other countries who had earlier been exempted from US sanctions against Iran and allowed to buy cheaper Persian oil.

The US fiat means these countries cannot buy crude from Iran after May 2, this year. This is likely to hit India’s oil bill after a time lag as crude prices are expected to rise by up to 10 %.

A costlier oil bill impacts the prices of almost all commodities as trucking and production costs go up with fuel price increases.

However, the oil shock in prices will take time in coming as India’s fuel costs are decided by oil marketing companies like Indian Oil who have contracted most of their purchases till the middle of this year at fixed rates.

“Prices will take time in going up in India but unless the Organisation of Petroleum Exporting Countries ramp up their production, global crude prices can be expected to go up,” said Prof. M Govinda Rao, former Member of the Prime Minister’s Economic Advisory Council. 

A US state department statement on ending the waivers issued on Monday said “The United States, Saudi Arabia and UAE… are committed that global oil markets remain adequately supplied.”

Last November, the State Department issued 180-day waivers to eight countries including India, China and Japan to give them more time to find alternative sources of oil. 

The Sensex fell by 495.10 points as markets reacted to news that US waivers were ending and crude prices may go up.  India purchases about 9.4 % of its crude supplies from Iran at a discounted rate and had been working to reduce this to 5 % by finding alternate sources. 

India’s average price for crude purchases stood at $ 71.11 as on April 19, 2019.  In anticipation of the US withdrawing its exemptions, Brent crude futures had jumped to $ 73.69 for deliveries on June 19, this year, up from about $54 a barrel in December-end.

“It was poor diplomacy on our part, we have been increasing tariffs on imports including those from the US  and could not have expected a sympathetic ear on our demands for continuing with cheaper Iranian Oil,” Prof. Rao said. 

Indian officials, however, said they would continue to work with the US to see if someway could be found. Said Pinak R Chakravarty, former Secretary (Economic Relations) in the Ministry of External Affairs

“India will, of course, continue engaging with the US on this issue … however if suddenly exemptions are withdrawn it may have repercussions on US relations with a host of nations.”

Turkey, one of the nations affected by the US sanctions reacted strongly to the end of waivers. Turkish Foreign Minister Mevlut Cavusoglu today tweeted “Turkey rejects unilateral sanctions and impositions on how to conduct relations with neighbours.”

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