Taking Iran oil imports to nil may also affect the export of Indian commodities such as basmati rice, as Iran accounts to 32 per cent of the country’s shipments of this variety. For the first 11 months of financial year 2018-19 alone, Iran imported basmati worth Rs 9,204 crore (1.27 million MT), significantly higher than Rs 5,830 crore (880,000 MT) the previous year.
“Discontinuation of crude oil imports from Iran can lead to issues on recovery of outstanding dues for the basmati rice shipments already made, hampering the financial position of such exporters. Given the share of basmati rice exports to Iran, any moderation in sales to this market can have a depressing impact on the Basmati rice prices globally,” said Deepak Jotwani, Assistant Vice President, ICRA.
But it is a sentiment-driven spike in crude oil prices that could deal a bigger blow to India. Such a possibility will further increase the country’s crude import bill, which touched $102 billion for the financial year 2018-19 till February, up from $87.8 billion in 2017-18. In the process, retail fuel prices will be impacted as well.
“Indian worries over higher oil prices and additional restrictions over relatively cheap oil imports from Iran are visible on its currency too. We expect a higher Current Account Deficit (CAD) for the first two quarters of FY19-20. We also expect the rupee to depreciate further from current levels to 72.40-74 in the near term if Brent oil continues to rally towards $80 per barrel in the near term,” said Abhishek Bansal, Chairman of ABans Group. Any increase in crude oil prices will have an impact on India’s wholesale price index (WPI) and consumer price index (CPI) too. Crude oil and its products have a weight of 10.4 per cent in the WPI. In terms of the CPI too, fuel related items have a weight of nearly 2.7-2.8 per cent directly.
The end of the waiver by the US may also mean the end of talks on key planned Indian investments like that of Farzad B field. “Regarding Farzad, slower pace of decision-making was always the roadblock,” says R S Sharma, former chairman of ONGC. An ONGC Videsh (OVL) official says there were times when a deal was almost finalised, but did not go through.
He recalls this incident: In early 2018, months before the Donald Trump administration unilaterally backed out of the nuclear deal with Iran, a group of Indian bureaucrats were on a visit to Tehran. Their mission was to finalise the long-pending deal for development of gas field in the Persian Gulf.
From Iranian side, a senior oil ministry official kicked off the conversation with, “You know, Iranians are tough negotiators”. The response from the Indians was just as quick: “Ïndians are even tougher negotiators”. This hard stance has always made it difficult to negotiate business deals with Iran.
In the case of Farzad B, the contract for Indian companies consisting of ONGC Videsh, Indian Oil Corporation and Oil India expired in June 2009, after the declaration of commercial viability of the block, based on the gas discovery. A source from OVL said by May 2018, almost 75 per cent of the Farzad deal had been finalised when the US backed out of the deal.
On the other hand, Subodh Kumar Jain, director of South Asia Gas Enterprises Pvt Ltd (SAGE), which is working on a planned under-sea gas pipeline between Iran and India, has a different story to tell. “We are moving from pillar to post to make this project a reality, but even after 10 years, it is yet to get adequate support. With sanctions coming in, we are now redrawing the route of our gas pipeline from Oman to India, avoiding Iran for the time being.” Jain added that whenever the project moves ahead, sanctions come in as roadblocks, similar to majority of the decisions in India-Iran diplomacy.
Crude oil imports from Iran (mn tonnes)
2015-16 : 12.7
2016-17 : 27.2
2017-18 : 22.6
Source: Ministry of Petroleum and Natural Gas