India is set to continue oil imports from Iran with the US agreeing on waivers for eight countries regarding sanctions set to kick in on November 5 and there are no plans to cut crude purchases from Tehran to zero, people familiar with the development said. The US has agreed to let eight countries, including its strategic allies India, Japan and South Korea, to keep buying Iranian oil after it reimposes sanctions next week, an unnamed senior US administration official was quoted as saying by Bloomberg on Friday. China too is among the countries, though terms for its waiver are being finalised, the report added.
Announcing the imposition of sanctions targeting Iran’s oil and gas exports, ports and banking system, secretary of state Mike Pompeo said on a conference call with reporters the US will grant waivers to “eight jurisdictions” because they had “demonstrated significant reductions in crude oil and cooperation on many other fronts”. He said a list of the countries will be released on Monday.
India is also likely to be given a carve-out for operating Chabahar port in Iran, under a waiver clause linked to the reconstruction effort in Afghanistan, people familiar with the developments in Washington said. The waiver is the outcome of prolonged and complex negotiations between India and the US over the past few months, during which the Indian side highlighted its energy security concerns and problems related to finding a new supplier that could provide the same volumes at similar prices if imports from Iran were totally halted, two people familiar with the discussions said.
Unlike Japan and South Korea, which temporarily stopped oil imports from Iran in September, Indian Oil and Mangalore Refinery and Petrochemicals continued purchases though the overall volume dropped slightly from around 10 million barrels in October to nine million barrels for November.
“There is no current possibility of going to zero,” one of the people said, referring to the repeated demands by key US officials, such as Pompeo, that all countries cut Iranian oil imports to zero.
India’s imports in the coming months are expected to hover around the nine million barrel mark, the people said.
Iran is the third-largest supplier of energy for India, after Saudi Arabia and Iraq, and offers various incentives that make it a more cost-effective supplier.
India is Iran’s second largest purchaser of crude and Tehran accounted for almost 20% of New Delhi’s oil imports in the first quarter of 2018-19. The cost is a key factor for the Indian government at a time when the rupee has been hit by the appreciation of the dollar, the people said. Any drastic cut in imports could also have driven up oil prices, they added.
The Indian side also reasoned it would be difficult for the US administration to refuse waivers to key allies such as India and Japan, despite the hardline stand taken by President Donald Trump, who pulled the US out the Iran nuclear deal or Joint Comprehensive Plan of Action in May and threatened sanctions to bring Tehran to the negotiating table for a new deal on its nuclear arsenal and missile programme.
India’s leadership has insisted it will go by UN sanctions and not unilateral matters and the first indication of its autonomous decision making was the signing last month of the $5.4-billion deal with Russia for S-400 air defence systems despite US threats of sanctions under Countering America’s Adversaries Through Sanctions Act (CAATSA).
India and the US are also working to resolve a host of trade issues, including tariffs on steel and aluminium, medical devices, on which India is veering around to the US view of capping trade margins for some products, IT products, for which India has insisted US goods meet Indian standards, and dairy, where matters are stuck because the US dairy industry uses bonemeal in cattle feed and products are classified as “non-vegetarian”.
Before the report of the waiver on Iranian oil, the Indian side also worked with Iran to come up with an effective method of payments that would be insulated from the effects of possible sanctions, including payments in a mix of euros and rupees.
The Iranian side had insisted on a higher percentage in euros, instead of the current figure of 55% in euros and 45% in rupees that is deposited with UCO Bank, which is expected to continue.
During negotiations with the US, the Indian side pointed out the rupee deposits would primarily be used for barter trade and could not be accessed by entities such as the Islamic Revolutionary Guard Corps, which has the particular target of most US sanctions for its alleged terror links, the people said.
“The sanctions are unlikely to affect shipping as Iran uses only vessels flying its flag and handles the insurance by itself,” one of the people said.
Two of the eight “jurisdictions” are already at zero, or will be there shortly, but Pompeo underlined US expectations from the other six — they “will import at greatly reduced levels”. Neither Pompeo nor treasury secretary Steven Mnuchin, who was on the conference call, elaborated how the US will measure those reduced levels. Pompeo said the purpose of these exemptions is to “give them a little bit longer to wind down. Weeks. Weeks longer to wind down.”
More than 700 individuals, entities, vessels and aircraft are going on the US sanctions list. They include major Iranian banks, oil exporters and shipping companies, the White House said in a factsheet.
The US administration is determined to apply maximum pressure, evident from the fact that only eight jurisdictions were being exempted from the curbs compared to 20 granted by the Obama administration.