American and Venezuelan Oil exports to India have
surged as a result of U.S sanctions against Iran. By targeting the Islamic
Republic’s lucrative oil sector, sanctions have impaired the longstanding
energy trade between New Delhi and Tehran, forcing India to diversify its
one of the top supplier of crude oil to India in recent months
United States has emerged as one of India’s top
suppliers of crude oil in recent months. In fact, exports of American crude to
India have outpaced the country’s other traditional sources, particularly in
the Middle East. Industry data indicates that India bought roughly 184,000 bpd
of oil from the U.S. between November 2018 and May 2019, compared with
approximately 40,000 bpd in the same period a year earlier.
US’s supply be sustainable?
The question that arises is whether the surge
will continue and if it is sustainable. Although greater oil trade between the
U.S. and India is a longstanding objective of bilateral ties, practical
concerns regarding the volume, availability, quality and geography of American
crude exports remain a concern for Indian refiners.
Many Indian refiners continue to see oil from the
Middle East, Africa and even Latin America as conferring certain advantages
over its American counterparts. At the same time, greater tension and
volatility in the Straits of Hormuz should make American crude more attractive
in the short-to-medium term from an Indian perspective.
also a big supplier like US now
Beyond the U.S., India has also significantly
increased oil imports from Venezuela. According to recent industry data, crude
shipments from the Latin American country surged to 475, 200 bpd, a 21-month
high. This figure constitutes a 100 per cent increase from the previous month
and a 50 per cent increase from the same period last year.
US sanctions on Venezuela, private Indian refiners continue to import from
Notably, U.S. sanctions have also been imposed on
major parts of Venezuela’s energy sector, specifically state-owned Petróleos de
Venezuela, S.A. (PDVSA) in an effort to mount pressure on the country’s
embattled leader, Nicolas Maduro. Despite American assertions to the contrary,
private Indian refiners have continued to import oil from the country,
including both Reliance Industries and Nayara Energy. Both firms struck deals
to purchase crude from PDVSA well before it became subject to the U.S.
Iran has long played a role in ensuring India’s
energy security. India’s rising energy consumption coupled with its falling
domestic oil output has preserved its status as one of the world’s largest
importers of oil.
This year alone, India imported more than 84 per
cent of its crude from abroad, an all-time high. The South Asian giant is the
second largest purchaser of Iranian crude after China.
India imported 27.2 million tons of oil worth
$11.1 billion between 2017-2018, and Iran historically accounted for nearly 17
per cent of India’s total crude imports.
of US sanctions on India-Iran oil trade
For the past several years, India-Iran oil trade
has fluctuated significantly based upon the state of prevailing U.S.-Iranian
tensions. The fluctuations follow a predictable pattern. Periods of acute
tension between the U.S. and Iran lead to sharp drops in India-Iran oil trade as
a result of stringent American secondary, or extraterritorial, sanctions.
Easing tensions lead to an easing of sanctions
and a commensurate increase in bilateral energy trade between India and Iran.
Following the consummation of the multilateral Iran deal, formally known as the
Joint Comprehensive Plan of Action (JCPOA) in July 2015, for example, Iranian
crude imports to India surged more than 110 per cent after certain U.S.
sanctions on Iran were lifted.
But the Trump Administration’s withdrawal from the
Iran deal in May 2018 and the renewal of sanctions ultimately forced India to
again significantly curb its imports of Iranian crude. India found itself in a
familiar position: either end the Iranian imports or jeopardize its access to
the American financial system as a consequence of U.S. secondary sanctions.
temporary sanctions waivers
In an effort to help stabilize global oil markets
and provide some of its closest partners and allies an opportunity to secure
alternative supplies, Washington issued temporary sanctions waivers to several
of Iran’s biggest purchasers of crude oil, including South Korea, Japan and
India. With the waiver in place, New Delhi ramped up its purchases of Iranian
crude, importing approximately 479,500 barrels per day (bpd) from Iran during
the fiscal year ending in March 2019. The figure represented a 5% increase
compared to the same period last year.
of sanction waivers and its impact
The Trump Administration’s decision to
permanently end all sanction waivers earlier this year, however, once again
compelled India to not just slash Iranian crude imports, but to cease them all
together. It has also forced India to search for alternative energy sources.