India buys most of its oil from Saudi Arabia. But it buys Iranian crude as well. So now that waivers of U.S. imposed sanctions on Iranian oil sales are ending, India is in trouble.
India is among eight countries that recieved a six-month waiver when the U.S. re-imposed sanctions on Iranian crude sales in November, 2018.
Now those six months are up and predictions are that India’s economy with suffer. Both fuel prices and inflation generally will rise, analysts say.
A year ago, Washington withdrew from the 2015 Iran nuclear deal with world powers that had given Tehran sanctions relief in exchange for curbs on its nuclear program.
The United States re-imposed oil sanctions on Iran in November but initially gave eight countries – including India and several other US allies – six-month reprieves.
“US sanctions on Iran is a double whammy for India after the Venezuelan sanctions,” said Vandana Hari, founder of Vanda Insights, a global energy markets portal. “It will have to pay more for imports and face higher foreign exchange outflows,” she told AFP.
India – Asia’s third-largest economy – imports over 80 percent of its crude oil requirements. This leaves it vulnerable to oil price surges.
A barrel of crude recently hit a six-month high of $75 because of America’s sanctions on Iran and Venezuela.
New Delhi announced last month that it would acquire additional supplies but analysts doubt it can fill the gap left by Iran.
“No one is going to give charity to India in the oil market. Even Saudi Arabia has no plans to replace Iranian crude in the global market,” Madhu Nainan, editor of PetroWatch, told AFP.
Oil is paid for in dollars and soaring crude prices puts pressure on India’s rupee.
Higher prices also increases the cost of fuel at India’s pumps and curtails government attempts to keep inflation low.
India’s government cut fuel duties last year after protesters took to the streets against record petrol prices.
With inflation low presently, India’s central bank has cut interest rates twice this year to help boost the economy.
Any surge in inflation sparked by the end of the sanctions waivers would make it hard for the Reserve Bank of India to cut again at its next meeting in June.