After the Trump administration’s Monday announcement that the United States would not renew its six-month waivers to third party countries for their continued purchase of Iranian oil, India has been put in an extremely tough position, and it’s still not clear which way the nation will go. Will India defy U.S. sanctions and continue to import Iranian oil, or will the nation’s leaders be willing to lose their third biggest crude supplier in favor of maintaining a good relationship with the United States?
India is the third-largest oil consumer in the world, and nearly 80 percent of its oil demand is met with imported oil. India is also the second-biggest purchaser of Iranian oil, after China. All this is to say that the loss of Iranian oil due to sanctions would be a major blow to the fast-developing subcontinent. India was one of eight countries that has been granted a waiver to continue importing Iranian oil (although in smaller quantities) for a six-month grace period. That period ends May 1st, leaving India (not to mention China, Japan, South Korea, Taiwan, Turkey, Italy and Greece) in the lurch.
There has been wide speculations as to what approach India will take, with plenty of op-eds claiming that they will stand in defiance of the United States and plenty claiming just the opposite, that they will fill in the Iranian oil gap with crude oil supply from other oil-producing nations. Now, India’s Petroleum and Natural Gas Minister Dharmendra Pradhan has given us a clue as to which way the Indian subcontinent is leaning.
Pradhan took to Twitter on Tuesday to announce that India will fill the gaps left by Iranian oil with imports from other major oil producing nations, saying that “Indian refineries are fully prepared to meet the national demand for petrol, diesel and other petroleum products.” according to Reuters reporting, Indian refineries are already planning to ramp up their imports from nations included in the Organization of the Petroleum Exporting Countries (OPEC), as well as from Mexico and the United States.
On Monday, when the Trump administration announced that the Iranian oil waivers would not be renewed, the president himself said that crude oil supplies from Saudi Arabia and its fellow OPEC nations are prepared and able to “more than make up” for supply losses due to U.S.-imposed Iranian oil sanctions. Saudi Arabia, for their part, said that it would establish a strategy, in coordination with other oil producing countries, to make sure that they would produce enough crude to meet any newfound demand and as well as to maintain a balanced global market.
India is already well on their way to being able to wean themselves off of Iranian oil completely thanks to the conditions of the six-month waiver granted by the United States in November 2018, which required waiver recipients to import heavily reduced quantities of Iranian oil (the waivers are officially called significant reduction exceptions). India had already almost halved their Iranian oil imports during this time period.
Many energy analysts remain unconvinced, however, that the U.S. decision–which took many market insiders by surprise and pushed up crude trading prices when the decision was announced on Monday–will be able to unilaterally cut Iran out of the international oil market. Chinese authorities have already publicly expressed their distaste for the decision, and some analysts think that China could even increase Iranian imports in defiance of U.S. politicking. Bjarne Schieldrop, chief commodities analyst at SEB, said Tuesday, “We think that China can’t and won’t back down this time and we could easily see an increase of Chinese oil imports from Iran up towards maybe 1 million bpd.”
When it comes to India, analysts similarly feel that this will not be the end of Iranian imports. In a note published Monday, the same day as the Trump administration’s announcement, analysts at Eurasia Group said “New Delhi will cut imports substantially but probably maintain approximately 100,000 bpd of Iranian imports paid for using a rupee payment system. This is less an energy security decision than a political one […] In the past several months India has worked hard to significantly diversify its energy sources in preparation for this situation. But India’s ties with Iran are significant and historic, and New Delhi will work hard to maintain some links”