DNA Edit: Oil conundrum – US sanctions on Iran put India in a spot

India finds itself in a difficult position as the US is hell-bent on stopping all countries from importing oil from Iran. The Donald Trump administration said on Monday that it will no longer exempt any country from US sanctions if they continue to buy Iranian oil. The measure will primarily affect five major oil importers: China, India, Japan, South Korea, and Turkey. While India will find it difficult to offend President Trump by not following the US diktat, it is likely to face a huge energy crisis if it stops importing oil from Iran. This country remains one of the main importers of oil from Iran after China. Washington has made it clear that oil imports of Indian companies, like the others, go to zero. 

The Americans have announced that no more sanction waivers would be granted when the current batch expires on May 2, choking off Iranian income, pegged at more than $50 billion a year. The US administration had granted eight waivers when it re-imposed sanctions on Iran in November after Trump pulled the US out of the landmark 2015 nuclear deal. The waivers were issued in part to give those countries more time to find alternate energy sources, but also to prevent a shock to global oil markets from the sudden removal of Iranian crude. The increase in oil prices will hurt India considerably. 

During 2016-17, India imported oil at $47.6 a barrel. At current prices, India will have to spend at least $70 per barrel, which implies an annual outgo of an extra $30 billion. It will damage the country’s s trade balance, and may force the government to bring back subsidies on petroleum products, such as diesel and petrol, as it happened from 2004-14. This can also throw India’s fiscal and trade deficit out of control.