The Donald Trump administration
said on Monday it would not renew waivers that let countries buy Iranian oil without facing US sanctions.
The US had given waiver to five nations —India, China, South Korea, Turkey and Japan — till May 2.
In anticipation of the move, the price of Brent crude, the global oil benchmark, rose as much as 3.3 per cent, the highest intra-day level in almost six months. The Indian markets posted their worst single-day fall in 2019 and the rupee fell 32 paise to close at a two-week low. The benchmark Indian crude oil basket
has already crossed $71 a barrel and is likely to jump further this week.
Though major Indian consumers said the country was ready for the situation, spiralling oil prices could create worries for the new government that will come to power next month, since its subsidy is expected to rise. It will also impact India's wholesale price index (WPI) more than the consumer price index (CPI). Crude oil and its products have a weight of 10.4 per cent in the WPI. In terms of the CPI, fuel-related items have a weight of 2.7-2.8 per cent directly.
India imported about 22 million tonnes of crude oil from Iran
in 2017-18. A senior government official said the country had contingency plans in place and had delayed the signing of a term plan with Iran
for a month till May 2, though it had finalised the quantity.
Chairman M K Surana said: “We have a well diversified oil basket and there won’t be any supply constraints… Other oil producing nations are likely to step in. By the second half of this year, there is expected to be additional supply in the market that may bring down prices.” A senior official at Indian Oil, the country's biggest buyer of Iranian crude oil, said: “There will definitely be some impact on prices with such a large quantity of crude oil going off market. But it needs to be seen how much the impact on prices will be.” Indian Oil said it had built in optional volumes in its term contracts with Kuwait, Abu Dhabi, Saudi Arabia and Mexico, which can be drawn to make up for a shortfall.
Debasish Mishra, leader for Energy and Resources at Deloitte in India, said: "The recent escalation in oil prices is predominantly due to disruption in supply from three major OPEC players, Libya, Iran
and Venezuela. The market is expecting Libya conflict to escalate and affect the supply." He said that, unlike last year, many analysts are not expecting prices to go beyond $80 a barrel as higher prices immediately dampen global demand.
Soon after the US came out with sanctions, it had given waivers to eight countries, of which Italy, Greece and Taiwan had stopped supplies by November. A White House statement on Monday said: "This decision is intended to bring Iran's oil exports to zero, denying the regime its principal source of revenue."
Secretary of State Michael Pompeo said the US, Saudi Arabia and the UAE were "working directly with Iran's former customers".
China, the largest buyer of Iranian crude, reiterated its opposition to unilateral sanctions on Monday and accused the US of reaching beyond its jurisdiction. "China's cooperation with Iran
is open, transparent, reasonable and legitimate, and should be respected," Foreign Ministry spokesman Geng Shuang said without elaborating on how China would respond.
Japan and South Korea, two of the US's closest allies and long-time buyers of Iranian oil, said they were aware of the move but didn't confirm the decision. Japan's chief cabinet secretary, Yoshihide Suga, said Monday in Tokyo that the government had kept in close contact with the US and expressed the view that "there should be no damage to the activities of Japanese companies.".
(With inputs from Bloomberg)