On 8 May, President Donald Trump announced US’ withdrawal from the international nuclear deal with Iran. Revoking the deal, Trump had said that he would reimpose the US economic sanctions on Iran to undermine “a horrible one-sided deal that should have never, ever been made.”
On 26 May, Trump told its allies to cut oil imports from Iran to “zero” by 4 November or face sanctions. Two days later the US State Department made it clear that there will be no waivers to anyone.
“Our focus is to work with those countries importing Iranian crude oil to get as many of them as possible down to zero by 4 November,” a US State Department official told Reuters.
US Makes Stance Clear to India
The US stance was once again reiterated by Nikki Haley, US Ambassador to UN, who visited Indian on an official trip, on Wednesday, 27 June.
In her meeting with Prime Minister Modi she said that it was important for India to cut its dependence on Iranian oil and said the US would work to allow India to use an Iranian port as the corridor to Afghanistan.
What is the Indian Government’s Stance?
While New Delhi says that it does not recognise unilateral sanctions imposed by the United States and instead follows the UN sanctions, oil companies have been asked to prepare an alternative source as India considers acquiescing to US President Donald Trump's demands , reported PTI.
Even though the Indian government’s stance is not clear, Oil Minister Dharmendra Pradhan’s statement hints at the fact that the there could be drastic reduction or even a no import policy.
Manoj Joshi, Indian Journalist and Distinguished Fellow at Observer Research Foundation (ORF), told The Quint that for India, it’s decision to align with the US is a question of courage and a perception on how important it is to trade with Iran.
In my opinion, most of the private players will stop importing oil from Iran due to the sanctions, but what the government’s stance is going to be is a matter of courage. Can the government assert their stance and say whether the sanctions will be imposed or no?Manoj Joshi to The Quint
Interestingly, during the previous round of sanctions, India was one of the few countries that continued to buy oil from Iran.
But even the experts fear that India can’t outrightly ignore the sanctions because the way Trump administration functions, if India doesn’t abide, sanctions could start coming the Indian way.
Senior Indian diplomat, Vishnu Prakash holds the view that, “US is a predominant power and our stake with the US is very high. The political relationship, the economic side, the strategic side, there is so much invested in the US. In today’s time and age it is very difficult to go against the US.”
Prakash also goes on to say, “The price to pay to ignore the American strategy control is rather high, the question to be addressed is: at what cost can you defy the US?”
However, the fact of the matter remains that Iran is the third largest exporter of crude oil to India, behind Iraq and Saudi Arabia. So, if India were to follow the sanctions, the domestic demand will have to be met by substituting Iran’s share of imports.
Will Indian Economy Be Hit?
Given the energy needs, India is Asia’s second largest importer, after China, of Iranian oil. But as the United States pressure is mounting, with its stance that no country will be spared, these two Asian countries could be staring at a crisis.
Speaking to The Quint, Vivek Kaul, Author, said:
If we stop buying oil from Iran, we will obviously buy it from somewhere else and that would mean paying in dollars because oil is brought and sold internationally in dollars. So that would mean that Indian demand for dollar would go up and Indian rupee will further lose value against the dollar.
“The other thing is price of petrol and diesel will go up. Right now, a lot of companies are buying oil from Iran and if countries start following the US sanctions the demand for oil will go up which mean the prices will go up,” he added.
While Kaul holds the view that markets don’t wait for decisions to be made and he links the recent depreciation of the rupee against the dollar to this news, Indian Diplomat Vishnu Prakash thinks the impact of this decision will be known in sometime.
It depends on the petrol prices, if US can built pressure on Saudi Arabia and other countries to gap the shortage of oil, then the impact will be different.Vishnu Prakash, Indian Diplomat to The Quint.
He also points out that when sanctions were imposed on Iran the last time, India had devised a system to buy oil from Iran by paying in rupee and through barter.
Will China Agree to The Sanctions?
As mentioned earlier, China is one of the largest importers of oil from Iran and even after the sanctions were imposed, China remains defiant.
But Kaul believes that China’s defiance, as opposed to India, is mainly due to the fact that China runs a trade surplus with the US.
China runs a trade surplus with the US, which means US imports more from China than China imports from the US. That means Americans are buying more Chinese goods than Chinese are buying American goods. So basically, China is a big boy that can put that stance.Vivek Kaul to The Quint
However, Vishnu Prakash believes that China’s stance will eventually change and they too will fall in line. In his opinion, some kind of a deal will be struck and China and US will eventually negotiate a deal.
However, the US State Department had categorically said Indian and Chinese companies would be subject to the same sanctions as those in other countries, reported PTI.
(With inputs from PTI and Reuters)
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