India looks for alternatives to Iranian oil imports

Iran’s crude oil customers are anxiously waiting indications from Washington on whether they can continue to import oil from Tehran or if they need to line up other suppliers before November 4, the date that US sanctions on Iran’s oil business are to commence.

The Trump administration is sending mixed signals about whether it is going to pursue a “scorched earth” approach to economically cripple Iran through unilateral US sanctions combined with corresponding secondary sanctions on US allies that do business with Tehran or whether it will take a more accommodating stance that allows for reduced imports of Iranian oil for some countries.

A senior US State Department official, speaking on condition of anonymity, said that Washington was pushing its allies to cut their Iranian oil imports “to zero” by November to “isolate streams of Iranian funding.” The official warned that the Trump administration could impose secondary sanctions on governments that don’t comply and that the administration was opposed to granting waivers.

When it pulled out of the Iran nuclear accord in May, the Trump administration said that it would reimpose sanctions on Tehran following 90-day and 180-day wind-down periods. The first set of US sanctions will kick in August 6 and will include a ban on the purchase or acquisition of US dollar banknotes by the Iranian government, sanctions on Iran’s trade in gold and precious metals and sanctions on significant transactions associated with the sale or purchase of Iranian rials.

It is the second stage of US sanctions, to go into effect November 4, that is causing consternation among Iran’s crude customers and international oil markets. These sanctions target Iran’s port operators and shipping and shipbuilding sectors and narrow in on petroleum-related transactions with key Iranian state entities, as well as the country’s energy sector.

Countries choosing to defy the reimposed American sanctions could see their financial institutions that do business with the Central Bank of Iran denied access to the US banking system.

During the previous US sanctions regime targeting Tehran, the Obama administration granted waivers to India, China, South Korea, Japan, Taiwan and Turkey, each of which had demonstrated that it was dramatically reducing Iranian crude imports, with those exemptions reviewed every 180 days.

While decrying the Trump administration’s decision to pull out of the 2015 Iran nuclear deal and protesting the renewal of US sanctions on Tehran, these countries quickly queued up for potential waiver relief.

In a letter to US Treasury Secretary Steven Mnuchin in June, the British, French and German foreign and finance ministers along with the EU foreign policy chief pointed to “security interests” as the justification for waivers for European firms. The European contingent argued that US secondary sanctions could affect the European Union’s ability to continue “meaningful sanctions relief to Iran,” which could result in Iran walking away from the nuclear accord. The letter stated that move “would further unsettle a region where additional conflicts would be disastrous.”

India — Iran’s largest crude buyer after China — received a waiver under the Obama administration and struck a defiant tone after the recent US decision to reimpose sanctions on Tehran. Indian Foreign Minister Sushma Swaraj said: “India will comply with UN sanctions and not any country-specific sanctions.”

New Delhi did, however, reach out to the Trump administration to seek a waiver for Iranian oil purchases but began considering a rupee trade structure employed under the previous sanctions regime that was acceptable to the Obama administration, in which India made some oil payments to Iran in rupees through a small Indian state bank, with Tehran using those funds to import Indian goods.

The rupee scenario has been shelved but, while the Indian government has been told it would not be granted a waiver for Iranian oil purchases, US Ambassador to the United Nations Nikki Haley reportedly emphasised to Indian Prime Minister Narendra Modi during a trip to New Delhi that his government should lessen its dependence on Iranian oil imports, suggesting there would be some leeway in terms of timing for total stoppage of Iranian crude purchases.

It appears that New Delhi’s fear of losing access to the US financial system may win out over its commitment to Iranian crude purchases. The Indian Oil Ministry informed the country’s refiners to prepare for either a dramatic reduction or zero imports of Iranian oil by November and has asked refiners to turn to alternative suppliers.

Jareer Elass is a Washington-based energy analyst, with 25 years of industry experience and a particular focus on the Arabian Gulf producers and OPEC.

This article was originally published in The Arab Weekly.