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The U.S. sanctions noose is set tighten on Iran from Wednesday, making it even tougher to get paid for crude it sells to large buyers, such as India.
The U.S. has been using the threat of financial sanctions to force countries to stop buying Iranian crude oil. Washington hopes that by doing so it will starve Tehran of cash and force it to give up its nuclear program. The U.S. believes the program is to develop nuclear weapons; Iran says it’s for peaceful purposes.
In December, the U.S. gave India and a slew of other nations a waiver from sanctions after they significantly reduced Iranian oil imports. But the Obama administration also said that it would enforce more restrictions on the trade in Iranian crude in February. Those came into play Wednesday, and include provisions that force countries that buy Iranian crude to only use banks within their own borders to make payments for that crude.
Those banks also can’t send that money to Iran or elsewhere overseas, effectively forcing Tehran to buy local products with the proceeds of its crude sales. What’s more, the U.S. restricts the kind of goods that Iran can buy with that money, including proscribing precious metals.
The U.S. already has shut down the use of its financial system for Iranian crude trade. That pushed New Delhi last year to agree with Iran to pay for about half of its crude purchases in rupees. Now, Iran will have to accept rupees for the whole amount of its crude sales to India and other countries.
Iran since last year already has found it difficult to find enough Indian products it wants to buy with the rupees it is earning. That problem is likely to get worse as Tehran is forced to accept payments in local currency for its entire $10 billion crude exports to India.
Currently, Iran has the rupee equivalent of $4 billion in cash at India’s state-owned UCO Bank, where India deposits money to pay for crude, according to Rafeeque Ahmed, president of the Federation of Indian Exporters Organization. He added that India would import $10.5 billion in goods, mostly crude purchases, from Iran in the current financial year to March 31, while exports would be around $1.5 billion, mostly food stuffs, pharmaceuticals and health care products.
Iran had planned to barter large quantities of Indian wheat in exchange for its oil. But the deal foundered due to fungal infections in India’s wheat crop, which pushed Tehran to back out of a plan to purchase around 3 million tons of the crop.
Analysts said Iran is caught in a quandary about its trade with India. It can’t afford to sever exports to its second-largest crude buyer after China without a significant loss of face globally, as it has maintained that U.S. sanctions haven’t dented its economy and exports.
Iranian experts say U.S. sanctions are unlikely to bankrupt Tehran, which has significant foreign currency reserves. Yet the sanctions are exacting a toll on its economy, which contracted about 1% last year after years of growing over 6%, according to the International Monetary Fund.
For India, the U.S. pressure has forced it to look elsewhere for its massive crude import needs, buying more from Saudi Arabia and Iraq. India is likely to import 17% less crude from Iran in the financial year ending March 31, according to an Indian government official, who also said the country plans to keep cutting Iranian crude imports by at least 15% each year.
The largest Indian purchaser of Iranian oil, state-run refiner MRPL Ltd, is planning to source more crude from Azerbaijan to offset the fall in imports from Iran, besides buying more crude from other countries, such as Saudi Arabia, Kuwait and Iraq.
Some analysts say the reductions haven’t hurt India’s economy as it has been able to find adequate supplies elsewhere.
“There is enough crude capacity out there that will allow Iranian oil to be replaced. In fact, among bigger buyers of Iranian oil almost all have been able to find replacements for their reduced purchases,” said Victor Shum, an analyst with Singapore-based consultancy IHS Inc.
However, India likely feels it can’t abandon Iran for geo-political reasons as much as economic ones. Both nations oppose Pakistan’s attempts to influence policy in Afghanistan, especially as Western forces gets ready to leave the country next year.
Still, India also needs to keep on the right side of the U.S., with whom its interests have aligned more closely in recent years due to a civil nuclear pact and closer cooperation on regional security.
http://www.thehindubusinessline.com/opinion/us-sanctions-to-redefine-indiairan-trade/article4379182.ece
The U.S. has been using the threat of financial sanctions to force countries to stop buying Iranian crude oil. Washington hopes that by doing so it will starve Tehran of cash and force it to give up its nuclear program. The U.S. believes the program is to develop nuclear weapons; Iran says it’s for peaceful purposes.
In December, the U.S. gave India and a slew of other nations a waiver from sanctions after they significantly reduced Iranian oil imports. But the Obama administration also said that it would enforce more restrictions on the trade in Iranian crude in February. Those came into play Wednesday, and include provisions that force countries that buy Iranian crude to only use banks within their own borders to make payments for that crude.
Those banks also can’t send that money to Iran or elsewhere overseas, effectively forcing Tehran to buy local products with the proceeds of its crude sales. What’s more, the U.S. restricts the kind of goods that Iran can buy with that money, including proscribing precious metals.
The U.S. already has shut down the use of its financial system for Iranian crude trade. That pushed New Delhi last year to agree with Iran to pay for about half of its crude purchases in rupees. Now, Iran will have to accept rupees for the whole amount of its crude sales to India and other countries.
Iran since last year already has found it difficult to find enough Indian products it wants to buy with the rupees it is earning. That problem is likely to get worse as Tehran is forced to accept payments in local currency for its entire $10 billion crude exports to India.
Currently, Iran has the rupee equivalent of $4 billion in cash at India’s state-owned UCO Bank, where India deposits money to pay for crude, according to Rafeeque Ahmed, president of the Federation of Indian Exporters Organization. He added that India would import $10.5 billion in goods, mostly crude purchases, from Iran in the current financial year to March 31, while exports would be around $1.5 billion, mostly food stuffs, pharmaceuticals and health care products.
Iran had planned to barter large quantities of Indian wheat in exchange for its oil. But the deal foundered due to fungal infections in India’s wheat crop, which pushed Tehran to back out of a plan to purchase around 3 million tons of the crop.
Analysts said Iran is caught in a quandary about its trade with India. It can’t afford to sever exports to its second-largest crude buyer after China without a significant loss of face globally, as it has maintained that U.S. sanctions haven’t dented its economy and exports.
Iranian experts say U.S. sanctions are unlikely to bankrupt Tehran, which has significant foreign currency reserves. Yet the sanctions are exacting a toll on its economy, which contracted about 1% last year after years of growing over 6%, according to the International Monetary Fund.
For India, the U.S. pressure has forced it to look elsewhere for its massive crude import needs, buying more from Saudi Arabia and Iraq. India is likely to import 17% less crude from Iran in the financial year ending March 31, according to an Indian government official, who also said the country plans to keep cutting Iranian crude imports by at least 15% each year.
The largest Indian purchaser of Iranian oil, state-run refiner MRPL Ltd, is planning to source more crude from Azerbaijan to offset the fall in imports from Iran, besides buying more crude from other countries, such as Saudi Arabia, Kuwait and Iraq.
Some analysts say the reductions haven’t hurt India’s economy as it has been able to find adequate supplies elsewhere.
“There is enough crude capacity out there that will allow Iranian oil to be replaced. In fact, among bigger buyers of Iranian oil almost all have been able to find replacements for their reduced purchases,” said Victor Shum, an analyst with Singapore-based consultancy IHS Inc.
However, India likely feels it can’t abandon Iran for geo-political reasons as much as economic ones. Both nations oppose Pakistan’s attempts to influence policy in Afghanistan, especially as Western forces gets ready to leave the country next year.
Still, India also needs to keep on the right side of the U.S., with whom its interests have aligned more closely in recent years due to a civil nuclear pact and closer cooperation on regional security.
http://www.thehindubusinessline.com/opinion/us-sanctions-to-redefine-indiairan-trade/article4379182.ece
