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India, China Could Mitigate US Sanctions' Impact on Iran

India, China Could Mitigate US Sanctions' Impact on IranIndia, China Could Mitigate US Sanctions' Impact on Iran

In recent months, India and China purchased more than 600,000 bpd apiece from Iran. Together, that amounts to about 60% of Iran’s oil exports, which makes them hugely important to the efficacy of US sanctions.

According to Oil Price, it is unclear which way India will go. Because of its proximity and growing thirst for oil, India is a major buyer of Iranian oil. Nevertheless, the Indian government of Narendra Modi has had a positive relationship with both the Obama and Trump administrations, no small feat.

While Trump has damaged the relationship between the US and a lot of countries, India has managed to avoid his wrath.

That would likely change if India scoffed at US sanctions on Iran and continued to import oil, but India’s need for imported oil puts it in a bind, especially with higher fuel prices causing some unease among its populace.

It could be costlier to cut out purchases from Iran and buy oil elsewhere. And during the last round of sanctions, prior to the 2015 Iran nuclear deal, India was one of the few countries that continued to buy oil from Iran.

Some argue that India could import oil from the US, which would serve several purposes at once. It could provide India with an alternative source of oil, it would also cut the US trade deficit with India, and help create goodwill with the Trump administration that is set to intensify its trade war with rivals and allies alike.

India could conceivably win steel tariff exemptions, if it complies with US demands vis-à-vis Iran.

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

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

China, on the other hand, is in an entirely different situation. Open trade war between the US and China could actually push Beijing into buying more oil from Iran, not less.

On top of that, with refiners in Europe, Japan and South Korea already beginning to curtail purchases from Iran, there is a lot of supply from Iran that is looking for a home.

Iran will likely offer discounts to Chinese refiners and China might readily scoop up ample supplies on the cheap.

“We do not have any problem selling our oil” to China, an Iranian official told the Wall Street Journal.

Even more enticing to China is the possibility of conducting the trade in yuan, which would serve the dual objective of elevating the Chinese currency and bolstering the Shanghai oil futures contract.

 Europe may even quietly support more Chinese purchases of Iranian oil in an effort to keep the nuclear deal alive.

 

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