America has given 60 days exemption to Iranian oil business. This may increase global oil supply in future and India may get cheaper oil and better options.
US-Iran Oil Deal: America has made an important change in its policy, giving great relief to Iran’s oil industry. The US Treasury Department has issued a temporary general license, allowing certain transactions involving Iranian crude oil, petroleum products and petrochemicals. This exemption includes not only buying and selling of oil, but also shipping, insurance and banking services related to it. Washington has decided to give Iran a temporary exemption of 60 days. That is, under this exemption, many transactions related to the production, sale, delivery and import of Iranian crude oil and petroleum products will be allowed till August 21.
Why is this decision beneficial for India
- This decision is considered important for India, which is one of the world’s largest crude oil importers. Even if this does not immediately lead to tankers loaded with Iranian oil arriving at Indian ports, it could open up an additional energy supply option for India.
- India imports about 85 percent of its total crude oil requirement from abroad. Therefore, changes in international oil prices have a direct impact on India’s economy.
- Increase in the price of crude oil increases the country’s import bill, puts pressure on inflation and affects the prices of many products including petrol and diesel. This is why India is always looking for more oil supply options and stable prices.
India’s dependence on Russia and Gulf countries has increased
There has been a major change in India’s oil import pattern in the last few years. After the Russia-Ukraine war, India increased its purchase of subsidized Russian oil. Russia currently provides about one-third to 40 percent of India’s total crude oil imports and has become the country’s largest oil supplier. Apart from this, India is still largely dependent on Gulf countries like Saudi Arabia, Iraq and United Arab Emirates (UAE). In the year 2025, the share of OPEC countries in India’s total oil imports will be about 50 percent. In such a situation, the possible withdrawal of Iran can provide an additional and important source of supply to India.
Old relation between India and Iranian oil
- India was among the largest buyers of Iranian oil before the US reimposed sanctions on Iran in 2018.
- Indian refineries preferred Iranian crude for several reasons. It was priced competitively, payment and credit terms were favorable and transportation costs were relatively low.
- After the imposition of sanctions, Indian companies had to stop buying oil from Iran, due to which the energy trade between the two countries almost came to a standstill.
- Now America’s temporary exemption may increase the possibilities of renegotiation between Indian refiners and Iranian suppliers.
Will India start buying Iranian oil again?
At present its possibility does not appear immediate. Experts say the current waiver is for only 60 days and is entirely dependent on the progress of US-Iran talks. Generally, refining companies decide to buy on a large scale only when they see a clear policy and stability for the long term. However, this definitely indicates that if the talks move forward in a positive direction, it may be possible for Iranian oil to return to the global market in the future.
How will India benefit from more oil supply?
- Even if India does not buy oil from Iran on a large scale immediately, it may get indirect benefits from additional supply coming into the market.
- Greater availability of oil generally helps keep prices under control. Besides this, the bargaining power of the buyer countries also increases.
- Its impact can be seen in the form of reducing India’s import expenditure and strengthening energy security.
What is the relation of Strait of Hormuz to India?
The Strait of Hormuz is also an important aspect of this entire incident. This sea route connects the Persian Gulf to the rest of the world and a large part of India’s oil imports come through this route. In recent months, due to increasing tensions in the Middle East, concerns about the movement of ships and oil supplies in the region have increased. The ongoing agreement process between the US and Iran also includes assurances related to maritime security and safe navigation in the Strait of Hormuz. If tensions in the region reduce, India’s energy supply could become more secure and stable.
India’s oil import bill may be affected
India imports crude oil worth more than $100 billion every year. Even a slight change in international prices has a big impact on the country’s import bill. According to experts, even a slight fall in crude oil prices can save India billions of dollars annually. For this reason, Indian policy makers constantly keep an eye on the developments in oil producing countries and the Middle East.
What are the signs ahead for India?
If talks between the US and Iran are successful and Iranian oil supplies gradually return to the global market, this could reduce pressure on oil prices. Additionally, reduced geopolitical tensions in the Middle East may make global energy markets more stable. In such a situation, India can get many economic benefits like lower import cost, controlled inflation, better energy security and less pressure on foreign exchange.