India may face short-term pressure after US action

0
115
President Donald Trump gives his State of the Union address to a joint session of Congress, Tuesday, Feb. 5, 2019 at the Capitol in Washington, as Vice President Mike Pence, left, and House Speaker Nancy Pelosi look on. (Doug Mills/The New York Times via AP, Pool)
- Advertisement -

Ravi Dutta Mishra & Subhash Narayan

Mumbai– India may increase import of oil from Brazil, Mexico and a few African countries to offset loss of Iranian oil in the wake of US decision that five major countries, including India, will no longer be exempt from penalties if they continue to import Iranian oil and their sanctions waivers would expire on May 2.

Iranian oil accounts for almost 10 per cent of Indian crude imports of about 220 million tonnes. With this market closing completely under US pressure, India could face severe shortages if alternative arrangements are not made quickly.

“Brent crude oil prices rose 1.86 per cent to 4 month high at $73.83 per barrel after reports that the US is planning to announce that buyers of Iran oil need to end imports soon or face sanctions. Due to this, we expect Brent crude oil price may test $78 to $80 per barrel,” said Anuj Gupta, DVP Commodities & Currencies Research, Angel Broking.

The US had late last year granted eight countries a 180-day waiver to continue to buy Iranian crude despite its sanctions with a condition that they reduce purchases and eventually end imports.

However, a few analysts said that the oil market is in general under stress due to disruptions on three fronts, Venezuela, Libya and now Iran. While Libya has still maintained its oil supply, Venezuela’s export is shrinking.

Despite the recent tension in Iran, oil is a commodity and will be adequately replaced, analysts said.

India, which is the second biggest purchaser of Iranian oil after China, has since then restricted its monthly purchase to 1.25 million tonne a month or 15 million tonne in a year (300,000 barrels per day), down from 22.6 million tonne (452,000 barrels per day) bought in 2017-18 financial year, sources said.

Iranian oil is a lucrative buy for refiners as the Persian Gulf nation provides 60 days of credit for purchases, terms not available from suppliers of substitute crudes — Saudi Arabia, Kuwait, Iraq, Nigeria and the US.

Diplomatic sources said that both Brazil and Mexico have expressed their desire to strengthen energy sector cooperation and India is evaluating the option and will take a call once it gets reports from its public and private sector oil marketing companies.

India shares good trade relation with both Mexico and Brazil. Both the countries are also leading producers of oil with Brazil being the 10th largest oil producer globally with a production of about 150 million tonnes (mt) of crude while Mexico just being one step down at 11th position with a production of 110 mt.

“The two countries can be useful alternative to Venezuelan oil but a decision to enhance imports would depend only after the accessing the quality of oil and terms of supply that should be comparable with of Venezuela,” said the source quoted earlier.

India is already importing oil from both Brazil and Mexico but the quantity has come down progressively since 2013. While India imported crude worth $ 3.50 billion and $ 1.78 billion from Mexico and Brasil respectively in 2013, the number has gone down to $ 1.38 billion and $ 0.81 billion now.

Mexico’s state oil company Pemex has reported a decline in production due to its ageing fields resulting in lower output less oil available from exports. But the situation may change soon with the new government there pushing up production focusing on inviting foreign investments in their fields. Brasil also is undertaking big reforms in the energy sector to increase production and exports of oil.

India imported 155 mt of oil in 2017-18. The imports are expected to hit over 170 mt in FY19 with Saudi Arabia being the largest supplier followed by Iraq and Iran. Oil imports from Iran are already on the decline due to US sanctions. This is expected reduce further once US removes waiver given to certain oil importing countries.

Moreover, the US is seeking to cut off Venezuela’s oil revenue as part of its efforts to build pressure on President Nicolas Maduro to step down. The US has recognised opposition leader Juan Guaido as head of state. The sanctions mean that anyone using US banking channels or have big presence in the US and continue to deal with Venezuela will also face restrictions. (IANS)

Advertisement

LEAVE A REPLY

Please enter your comment!
Please enter your name here