Geopolitics Over Oil

India Unsure If U.S. Waiver On Buying Iranian Crude Will Continue

Nitin A. Gokhale 19 April 2019

Indian diplomats are bracing for an aggressive United States seeking to end a waiver it granted to eight nations including India last November on buying crude oil from Iran.

Although negotiations between America and interlocutors of each country on that list over the issue are on bilaterally, there are indications that Washington, egged on by hardliner Israeli leader Benjamin Netanyahu—who has just won another term in office—may want to squeeze Iran further by limiting its ability to earn foreign exchange through its considerable oil reserves. India may unwittingly therefore suffer collateral damage in the process since the White House will look to corner Iran more.

In November 2018, the United States reimposed sanctions against Tehran over its nuclear programme after the Trump administration withdrew from a 2015 deal between six nations, including the United States and Iran. However, eight nations—China, India, Japan, South Korea, Taiwan, Turkey, Italy and Greece—were allowed to continue importing Iranian crude provided they eventually stopped buying it. The waiver gets over on 4 May.

India has progressively reduced its oil off-take from Iran since last year and is now buying less than 300,000 bpd (barrels per day) from a peak of about 500,000 bpd in April 2018. An Indian think tank, Observer Research Foundation (ORF) in its monthly Oil News Commentary for February 2019 says India’s oil imports from Iran fell by 45 per cent in January to 270,000 bpd. It said Iran was the seventh biggest oil supplier to India in January 2019 compared to sixth place in December and third position it held a year ago.

Despite the reduction, India is unlikely to be able to bring Iranian crude import down to zero as the U.S. wants by the May 4 deadline, sources in India’s oil sector point out simply because there is no other supplier, not even the United States, which has the ability to meet Indian oil demand. Hence, the hectic negotiations. It is anybody’s guess on how Washington would react. A recent report quoted an official saying talks are continuing with India. A Reuters report said Vincent Campos, a spokesman at the U.S. State Department’s energy bureau, would not confirm that India was asking the United States to renew its waiver but said talks are ongoing with the eight consumers of Iran’s oil that received waivers in November with the aim of eventually cutting imports to zero. “We continue to have bilateral discussions” with each of the countries, including India, Campos said. Neither India’s Ministry of External Affairs Ministry nor the Oil and Natural Gas Ministry is willing to comment on the current status of negotiations with the United States.

In any case, there is a visible slowdown in Indo-U.S. relations. Although in 2018 India’s strategic partnership with the United States was substantially reinforced through defence and security seals, with the signing of important foundational agreements like COMCASA, STA-1 status given by the U.S., managing the impact of Iran and Russia sanctions and coordination on regional issues like the Maldives, U.S. pressure to further reduce all imports from Iran and discourage new weapons purchases from Russia and India’s concerns over U.S. immigration policy (H1B/H4) are also potential challenges in the current year.

Last year, convergence on the Indo-Pacific and the QUAD, driven by the changing U.S. perception about China as a strategic threat to them, were also positive developments from India’s perspective. On the other hand, the absence of any meeting between Prime Minister Narendra Modi and U.S. President Trump has been something of a concern on both sides. The perceived lack of positive movement on trade matters, to which Trump personally attaches importance, is the most likely explanation.

The Indian government therefore sees key objectives in Indo-U.S. relations for 2019 as (a) to achieve early breakthrough on trade issues and to maintain sub-cabinet level contact at officials’ level and (b) to continue defence purchases to offset India buying Russian defence platforms. The first test will, of course, be early May when Washington will decide on waiver over sanctions against Iran.

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