Iran sanctions: Modi govt’s celebration to be “short-lived”, higher oil prices inevitable

Union Petroleum Minister Dharmendra Pradhan this week credited Prime Minister Narendra Modi for winning India a waiver from the unilateral US sanctions on Iran’s oil exporters, banking and shipping companies.

Analysts and foreign policy observers, however, believe that the government’s celebrations, will be short-lived, as cutting down on Iranian crude imports, a process already underway, will have adverse impacts on crude prices globally, like it will in India.

“Within six months to a year, you will see the consequences in form of spiking oil prices,” said Talmiz Ahmad, a former secretary for international cooperation in the Ministry of Petroleum and Natural Gas and, formerly, also India’s envoy to Saudi Arabia.

On the eve of sanctions kicking in, US Secretary of State Mike Pompeo had named India, along with seven other countries, as being granted a waiver from US’ unilateral sanctions on Iran. More than 700 individuals, entities, vessels and aircraft are now on the sanctions list, including major banks, oil exporters and shipping companies, as per US State Department.

“At the current level, Iran is providing about 2.7 million barrels of oil per day to the international community. Because of US’ unilateral sanctions, there would be a very serious impact on the global oil prices,” noted Ahmad, as he cautioned that other oil producers will not be able to meet the demand for oil that the international market wants.

The signs in New Delhi, which is seen playing along with the US, are not encouraging. The Press Trust of India has quoted sources in New Delhi as claiming that the Narendra Modi government has agreed to reduce the oil imports from Iran to 3,00,000 barrels a day, from 4,52,000 barrels a day over the last financial year.

As per conditions of the US waiver, New Delhi will have to stop importing Iranian crude altogether towards May next year, which coincides with the crucial Lok Sabha elections.

“There will be a shortage of oil in the international market. Because neither Iraq nor Saudi Arabia is in position to meet the shortfall in the international market,” said strategic affairs expert Qamar Agha.

“All countries dependent on oil, more so the eight countries that have been granted temporary waivers and which are heavily reliant on Iranian imports, would see their economies suffering,” remarked Agha.

Agha reasoned that as oil-reliant, developing world economies cut down on Iranian crude imports, all would look up to Saudi Arabia to meet the shortfall, which he said won’t be possible for Riyadh itself.

While Saudi Arabia’s Crown Prince Mohammad bin Salman had expressed confidence last month that Organisation of the Petroleum Exporting Countries (OPEC) was making up for less Iranian crude, Iran and other analysts have disputed the claim. Oil prices touching a recent high of $86 a barrel around the same had put a big question mark over if Iranian crude could be dispensable.

India-Iran trade ties

While the import of Iranian constitutes the lion’s share of trade between Tehran and New Delhi, the two Asian powers have a rather diversified economic relationship.

According to official data, India’s exports to Iran last year touched a two-year high of $2.7 billion, with cereals, chemicals, pharmaceuticals, machinery, and tea being some of India’s major exports to the central Asian country.

Besides, the crucial seaport of Chabahar is a major connectivity initiative of the government, which will allow it to bypass a hostile Pakistan as it seeks to expand trade ties with Afghanistan, central Asia, and Russia.

Under the agreement signed between India and Iran, India is to equip and operate two berths in Chabahar Port Phase-I with an investment of $85.21 million and annual revenue expenditure of $22.95 million on a 10-year lease.