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Recent actions by the Trump administration indicate that the US is becoming impatient. The US President’s measures related to trade and tariffs have been severe and could very possibly result in a global trade war. Trump has had issues with virtually every major trading partner like China. India. and the European Union. and so far the US President has shown no sign of backing down. This is a worrying sign. especially for India.
India still hopes that the Trump administration will ease up on its pressure to block trade with Iran. New Delhi and Tehran share warm relations and currently Iran has become India’s second-largest oil supplier after Saudi Arabia. But now with US pressure. things seem to have come to a head. Earlier. India had evaded past sanctions to import Iranian crude by paying in Indian currency rather than the US dollar. But with the Trump administration tightening the screws. reports suggest that India’s two main oil refiners Reliance Industries (RIL) and Nayara Energy. promoted by Russian oil major Rosneft. may stop importing crude from Iran altogether by November. In due course. public sector refiners may follow a similar path.
The question then is what are India’s alternatives? Earlier. Indian refiners had given serious thought to exploiting opportunities in Venezuela. However. falling production in that country has forced Indian refiners to explore newer options to Iranian crude. The alternatives available include: (i) Greater access to increased output by other OPEC members. especially Saudi Arabia. (ii) Increased access to Russian crude. (iii) Buying more crude from the US (iv) Expanding crude sourcing from Africa.
What are the likely scenarios? Considering that RIL has a lucrative export business in the US. it may find it difficult to defy the US sanctions on Iran. RIL is an aggressive crude buyer because it has ultra-modern refineries. which processes a variety of crude. So. RIL may decided to forego the loss of Iranian crude and concentrate on the US market access to refined and petrochemical products. Other regular Indian buyers of Iranian crude will. however. have to find alternatives and of course Nayara Energy will be well placed to exploit crude sourcing opportunities in Russia. Going by the current scenario. this is the likely path that most refiners will follow. However. the impact on the Indian economy. already reeling under high petrol prices and falling rupee. will be immense.
But as some experts have argued. there may be no alternatives and India may most likely have to prepare itself to import American crude. Apart from the bilateral relationship. figures show just why New Delhi needs Washington more than Tehran. During April 2017-March 2018. India-US bilateral trade clocked over $77 billion and India enjoyed a trade surplus of $22.5 billion. During the same period. India-Iran total trade stood at $13.7 billion. with India’s trade deficit at $8.4 billion. Based on these trade parameters. India is much better off keeping the US on its side. Therefore. at this juncture. annoying the US and creating a trade conflict is not in India’s economic interests.
If India does not import crude from the US. the most likely fallout will be to buy from other OPEC countries. resulting in the country’s oil import dependence on Iraq. Kuwait. Oman. and Nigeria going up. However. even through this route. it will be a challenge for the country to locate a replacement supplier of 22.6 million tonne of crude — Iran’s supply to India in 2017-18.
Indian must hope that US President Donald Trump and the US administration are willing to listen to and discuss their concerns when the two sides meet for the two-plus-two dialogue scheduled for early September this year. Issues such as the Afghanistan peace process. terrorism. maritime security in the Indo-Pacific region. and Iranian oil will be key points of discussion. The US policy towards countries that do business with Iran and Russia (India buys oil from Iran and Russia is a key supplier of defence equipment) will also be discussed in detail and this is where Prime Minister Narendra Modi will have to press home India’s case.
So far. the government has remained confident. Speaking to reporters. Petroleum Minister Dharmendra Pradhan has stated that India would be governed by ‘its own interests’ and that the country has many options if the Iran issue cannot be resolved with the US. To an extent. he has a point. India’s source markets have widened. But despite Pradhan’s assurances that oil supply will not affected. refiners will be keeping their fingers crossed.
India also needs to remember that America under President Trump is very different from America under any other past presidents. Even if Prime Minister Modi does manage to convince President Trump at the two-plus-two dialogue to understand India’s interests. the increasingly shrill rhetoric between Tehran and Washington suggests that this is a problem that is likely to remain for some time to come. This will be a stern test then for Indian diplomacy and for Prime Minister Modi. So far. the Prime Minister has had nothing but success in his foreign policy ventures. One can only hope that under his stewardship. India will sail through this turbulent phase of global trade and geopolitics unscathed.
