MUMBAI, May 2, 2019 (BSS/AFP) – The end on Thursday of US sanctions
waivers for purchases of Iranian oil is likely to hit India’s economy hard,
increasing fuel costs and quickening inflation, analysts say.
Last May, President Donald Trump withdrew Washington from the 2015 Iran
nuclear deal with world powers that had given Tehran sanctions relief in
exchange for curbs on its nuclear programme.
The United States reimposed oil sanctions on Iran in November but
initially gave eight countries — including India and several other US allies
— six-month reprieves.
Washington announced last week that the waivers, which have also benefited
China and Turkey, would expire on May 2.
“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, leaving it vulnerable to oil price surges.
A barrel of crude recently hit a six-month high of $75 due to America’s
sanctions on Iran and Venezuela.
India buys mostly from Saudi Arabia but has a long history of purchasing
Iranian crude.
New Delhi announced last month that it would acquire additional supplies
from elsewhere but analysts say it won’t be able to 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 in an attempt to quell public
anger 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.
India is busy with a mammoth general election and analysts say whoever
forms the next government — Narendra Modi’s Bharatiya Janata Party or Rahul
Gandhi’s Congress — will have to come up with a long-term solution for its
oil needs.
“The Indian government needs to send a message to Washington that it
understands the need for sanctions but also to press it to find a resolution
to the problem,” said Hari.