India Faces Iran Dilemma

The US embargo on Iran's oil shipments has put Indian Prime Minister Narendra Modi in a quandary. If he plays along, India could find itself on the right side of US President Donald Trump on trade, but lose cheap supplies and precious foreign exchange. Oil imports from Iran totaled about $9 billion in the year ended March and substituting some of the contracts with more North American crude will help India lower the $24.5 billion trade surplus it runs with the world’s largest economy, Bloomberg reported.

The South Asian nation is already buying more crude from the US, data from the Census Bureau and Energy Information Administration show.

While ending purchases from Iran will cost India savings on shipping costs and the longest credit period offered by any of its suppliers, there are gains to be had from paring the trade surplus with the US—at the heart of Trump’s trade war with China.

For one, it will soften the approach on thorny issues such as India being named on the US Treasury’s watch list of potential currency manipulators who use exchange rates to boost exports.

“The upcoming sanctions on Iran provide a golden opportunity to commercialize more US oil in the Indian market,” said Abhishek Kumar, a senior energy analyst at Interfax Energy in London.

“Escalating trade tensions between the US and China will also be conducive to more US oil coming to the Indian market.”

India has been preparing for alternative supplies after the US decision to reimpose sanctions on the Persian Gulf state.

Indian Oil Corp. Chairman Sanjiv Singh says Saudi Arabia alone can cover most of the world’s supply shortfall in case Iran’s oil exports dry up. However, experts have downgraded this claim. A narrowing spread between Brent crude and Dubai oil gives India even more options, the head of IOC, one of Iran’s largest customers, claimed.

“We have a very wide crude basket. There’s nothing we cannot procure; there is nothing we cannot process. So, even if Iran supplies get disrupted, the supplies to the Indian market will still continue."