Buying oil from other sources can cause a big dent to Indian economy

In India, top ministers of Narendra Modi government held talks on the issue of investment in petroleum and gas sector a month after the US waiver for India to import oil from Iran came to an end. The meeting chaired by Home Minister Amit Shah was attended by Finance Minister Nirmala Sitharaman, External Affairs Minister S Jaishankar, Petroleum and Natural Gas Minister Dharmendra Pradhan and Railways and Commerce Minister Piyush Goyal.

The meeting gained significance as US President, Trump’s administration told India, China, Turkey and a few other oil customers of Iran that no waiver on sanctions would be granted to them after 1^st May 2019, ending six months of exception to the sanctions.

The US had granted exemptions to India, China, Japan, South Korea and Turkey “to ensure a well-supplied oil market” in November last year for six months after it re-imposed sanctions on the Persian nation in view of its controversial nuclear program.

India is said to be in touch with the US to seek further extension of the waiver on oil imports from Iran, pointed out that it has been gradually reducing its energy purchases from the Islamic country.

Two weeks after the US decision came into force, Iranian Foreign Minister Mohammad Javad Zarif travelled to India and met the then External Affairs Minister Sushma Swaraj. After her meeting with Zarif, she had said a decision on India’s oil imports will be taken after the elections keeping in mind India’s commercial considerations, energy security and economic interests.

Following the withdrawal of the US waiver, India has stopped contracting oil shipments from Iran. With 80 per cent of India’s requirements being met through imports, higher-priced oil from non-Iranian sources can make a big dent in the country’s current account deficit and foreign exchange reserves.

Oil imports from Iran in the past fiscal year ended March 2019 amounted to about US$9 billion. Official sources have said that getting oil from alternative sources would have financial implications and lead to further pressure when crude prices touch US$75-80 per barrel in the near-term, putting pressure on India’s import bill.

Iran used to offer India a longer credit period of 60 days compared to other crude suppliers, while the cargo insurance was free.

Imports from Iraq, UAE and Saudi Arabia will now be on the higher side, without some of the benefits that Iran was giving, India has been Iran’s second largest customer of oil, after China.