The United States has announced that it will end sanctions waiver to India and 7 other countries that are major importers of Iranian oil. India was granted exemption from US sanctions under the Significant Reduction Exceptions (SREs) in December 2018 for a period of 6 months.
This exemption is to end in May 2019 and the US has announced that it will not be extending the exemptions granted to the 8 countries that includes India.
- India, which is the 2nd largest customer of Iranian crude after China, is being pressed by the United States to limit its month-to-month acquisition to 1.25 million tonnes or 15 million tonnes yearly (300,000 barrels daily), below 22.6 million tonnes (452,000 barrels daily) purchased in 2017-18 fiscal year.
- India is the globe’s third-largest customer of crude, with 85 percent of its petroleum as well as 34 percent of its gas needs being satisfied through imports. In 2016, India imported 215 million tonnes of petroleum and at 13 percent, Iran ranked 3rd amongst India’s largest oil sellers, after Saudi Arabia and also Iraq at 18 percent each.
- Also throughout the previous package of injunctions in between 2012 and 2015, India had actually persisted to import crude oil from Iran. Despite the fact that the worth of oil imports had actually dipped from USD 11.6 billion in 2011-2012 to USD 4.3 billion in 2015-16, it had actually once again climbed to USD 8.9 billion in 2017-18.
- In spite of the threat of sanctions, India and China are expected to defy the US injunction to some extent even while reducing their dependence on Iranian oil. Significantly, India has already reduced its oil imports from Iran by almost half since November, when the US sanctions on Iran came into effect.
- As an aspect of the variation, India imported oil from the United States for the very first time 2 years earlier. From October 2017, 4 PSUs have actually requisitioned shipments for 11.85 million barrels, worth around $730 million at existing market value. The initial United States oil shipment arrived at Paradip on October 2, 2017.
The reduction in oil imports from Iran will have potentially adverse impact on the following areas:
1. Current account deficit: This is expected to increase
2. Rupee: Increase in imports will put adverse pressure on the rupee to depreciate.
3. Inflation: Inflation could increase significantly depending on the increase in domestic petroleum prices after the end of the General elections in May.
Possible Impact on the Strait of Hormuz
Shortly after the United States stated it would certainly stop 5 of Iran’s most significant consumers– consisting of India– from purchasing its crude, Tehran cautioned to shut the Strait of Hormuz, a narrow body of water in between its southerly shore and the north summit of the sultanate of Oman, as well as the waterway whereby a 3rd of the globe’s seaborne crude flows each day. It is a risk that Iran has actually made previously, also– and this critical location has actually witnessed a number of conflicts appear in Tehran’s uneasy association with Western powers for many years.