The US decision to reinstate financial sanctions on Iran will not impact India's oil imports from the Islamic Republic as long as European countries don't follow suit, officials said today.
The US decision to reinstate financial sanctions on Iran will not impact India’s oil imports from the Islamic Republic as long as European countries don’t follow suit, officials said today. India pays its third largest oil supplier in Euros using European banking channels and unless these are blocked, imports will continue, they said. US President Donald Trump yesterday announced that the US will withdraw from the landmark 2015 accord to curb Iran’s nuclear program and reinstate financial sanctions on the Persian Gulf nation.
Soon after the announcement, oil prices rebounded to trade at the highest level since 2014 with Brent crude oil climbing 2.5 per cent to USD 76.75. “Immediately there will be no impact but we have to wait and watch how other nations particularly the European block, react,” said A K Sharma, Director (Finance) of Indian Oil Corp (IOC), the country’s largest oil firm. If the European Union (EU) were to continue status quo and not re-impose sanctions, Iranian supplies to India will continue unhindered, he said.
But paying Iran for the oil India buys would become difficult in case European countries join the US and impose financial sanctions and block banking channels, he said. French President Emmanuel Macron, who personally lobbied Trump to remain in the deal during a state visit to Washington last month, said: “France, Germany, and the UK regret the US decision to leave the JCPOA.”
JCPOA stands for the Joint Comprehensive Plan of Action (JCPOA), the acronym for the Iran nuclear deal that was signed between Iran and the P5+1 (the five permanent members of the United Nations Security Council – China, France, Russia, the UK, US- plus Germany), and the EU in Vienna on July 14, 2015. JCPOA provided for Iran curbing its nuclear programme in return for the lifting of financial sanctions. Iran is India’s third-largest oil supplier behind Iraq and Saudi Arabia.
It supplied 18.4 million tonne of crude oil during April 2017 and January 2018 (first 10 months of 2017-18 fiscal). Iran was India’s second biggest supplier of crude oil after Saudi Arabia till 2010-11 but western sanctions over its suspected nuclear programme relegated it to the 7th spot in the subsequent years.
In 2013-14 and 2014-15, India bought 11 MT and 10.95 MT, respectively from it. Sourcing from Iran increased to 12.7 MT in 2015-16, giving it the sixth spot. In the following year, the Iranian supplies jumped to 27.2 MT to catapult it to the third spot. Iranian oil is a lucrative buy for refiners as the Persian Gulf nation provides 90 days of credit for purchases, at least thrice the amount of time given by other producers.
During the first round of sanctions when EU joined the US in imposing financial restrictions, India initially used a Turkish bank to pay Iran for the oil it bought but beginning February 2013 paid nearly half of the oil import bill in rupees while keeping the remainder pending opening of payment routes.
It began clearing the dues in 2015 when the restrictions were eased. Besides, New Delhi sought to get around the restrictions by supplying goods including wheat, soybean meal and consumer products to Iran in exchange for oil. Back in 2012, EU put restrictions on insurance of Iranian oil and ships carrying them.
To get around the problem, Iran supplied oil in its own tankers. Officials said the insurance hurdle is not foreseen as of now because European nations such as the UK and France have indicated that they are sticking with the nuclear accord. Following Trump’s announcement, companies are not allowed to strike new deals in the Iranian oil and energy sector.
By August, transactions in Iranian government debt or currency and purchases involving the country’s automobile sector or Iranian gold and other metals must end. In November, deals involving Iran’s oil and energy sector, shipping and ports, and insurance services will be prohibited.