The Trump administration, in its April 22 announcement, said it will not renew exemptions granted last year to buyers of Iranian oil.
The United States threatened sanctions on countries importing Iranian oil in November 2018, and the six-month waiver it gave to certain countries also came to an end today.
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On April 22, the White House demanded that buyers of Iranian oil stop purchases by May 2 or face sanctions.
The waiver allowed certain countries — India, China, Turkey, Greece, Italy, Japan, South Korea and Taiwan — to buy oil, without penalties, from Iran.
Among the countries that were given the waiver, Italy, Greece and Taiwan have stopped importing oil from Iran. The Trump administration, in its April 22 announcement, said it will not renew exemptions granted last year to buyers of Iranian oil.
India remains to be the second largest oil consumer in the world. India receives nearly a tenth of its crude supplies from Iran and is Iran's second-biggest client. For India, Iran is their third largest supplier.
India imported close to 10 percent of its domestic oil requirement from Iran in 2018-19.
According to data-collection forum Statista, the demand for oil in India at 2030, is projected to be around 7 million barrels per day, which is almost double the demand in 2013, which was 3.7 million barrels per day.
So, what options does India have now?
Even though there are many exporters India can buy oil from, a major worry for the country is the distance. There will be an increase in the freight cost to import oil farther countries.
According to a PTI report, alternate sources of oil have already been set up to comply with the immediate demand when the waivers expire.
The Indian Oil Corporation (IOC) has the option to take 0.7 million tonne of crude oil from Mexico on top of its committed purchase of 0.7 million tonne during the year. From Saudi Arabia, it has an optional volume of 2 million tonne on top of a term contract of 5.6 million tonne.
Similarly, it has optional volumes of 1.5 million tonne from Kuwait and another 1 million tonne from the United Arab Emirates.
For the long term, India can look to boost its relations and trade with the US and other oil-producing countries.
Since Iran is the third largest oil supplier to India after Iraq and Saudi Arabia, India can also weigh the option of increasing oil supply from its top two suppliers.
India can also opt for US shale or rope in oil supplies from the US. However, for this, India will have to pay a hefty freight cost. Although expensive, the option remains open for India to import oil from the US.
However, if there is a discount on Brent crude of $3-4 a barrel, the freight cost can be taken care of, making the crude an attractive option.
Around 60-70 percent of crude oil supply, from oil marketing companies, is term contract since it ensures a steady supply. Around 30-40 percent of the crude requirement is imported on a spot basis.
The US had imposed sanctions on Iran in November 2018 citing the continuation of Iran obtaining nuclear weapons. The US also argued that the move will push Iran to abandon its ballistic missile development and will stop them from supporting militant groups in Syria, Yemen, among other countries that US regards as terrorist foundations, as it will weaken the country's economy.
Oil production is one of the largest contributors to the Iran's economy, contributing 23 percent to its gross domestic product (GDP).
First Published: IST