The six-month US waiver for import of oil from Iran is coming to an end on May 2. Thereafter, India and a host of other nations, including China, would source oil from Iran at the pain of severe US sanctions. Not only Iran , no other country is in a position to defy the American diktat howsoever arbitrary it may appear.
President Donald Trump is bent on making Iran a global pariah and thus further the agenda of Saudi Arabia to emerge as the sole power in all of West Asia. Why the US would go out on a limb to hit Iran does not make strategic sense, but it is hard under Trump for the US to separate arbitrary from rational in the conduct of its foreign, or, for that matter, domestic policy.
Notably, the other five countries which negotiated the nuclear deal are still trying to salvage it despite the US withdrawal. The stoppage of oil imports from Iran would immediately pose a headache for India because in recent years these had nearly doubled from the earlier four per cent of the total oil imports.
From 12.7 million tonnes in 2015-16 to 23.6 million tonnes in 2018-19, the Iranian oil was also made available at relatively better terms. Iran provided 60-day credit as against the usual 30-day and also provided near-free insurance and shipping.
Given the constant pressure on the balance of payments position, this was not a small gain to be sniffed at. India hopes that the shortfall will be met by higher imports from Saudi Arabia, Iraq and the UAE. Without doubt, the ban on imports from Iran is bound to push up the price of crude oil globally, especially due to disruption in supplies from Venezuela and Libya and even from Nigeria.
The global price of crude, currently at about $70 a barrel, can rise to around $80-85 a barrel and thus pressure the already strained current account deficit. With sluggish exports, a rising import bill, basically on account of higher crude oil prices, would increase the CAD to three per cent of gross domestic product. But oil is one commodity where the Indian planners have limited options.
A higher outgo on crude oil imports could also have an inflationary impact on the general price-line which has remained stable in recent months. Also, neither the pace of adding to the existing production of renewable energy nor exploring fresh sources of domestic oil production raises hope of gradually tapering off dependence on oil imports.
Fortunately, the US has exempted the on-going development of the Chabahar port, a project in which India is invested in heavily both financially and strategically. The Chabhar project is important for India for an alternative route for trade with Central Asia. Significantly, at one stage India had courageously talked of defying the US sanctions against Iran, saying it would only recognize the UN sanctions.
But given the numero uno position of the US as the most powerful nation both financially and militarily it is hard for anyone to ignore its demands. The five other signatories to the Iranian nuclear deal are finding it hard to rescue it in the face of its rejection by Trump. Several European companies have had to abandon lucrative contracts following the US sanctions against Iran.
In short, India could not have defied the US despite it having warm ties with Iran. Incidentally, even China is obliged to respect the US sanctions and stop sourcing oil from Iran. The tools at the disposal of the US to make the countries defying its one-sided sanctions to fall in line are so many that perforce these feel obliged to give in to the arbitrariness of the Trump administration.
To begin with, the US threatened to oust the defying country out of the global banking system through its near-universal SWIFT money transaction operations. It could also freeze all dollar transactions by the defying nation. In sum, it is unrealistic to talk of defying the US sanctions. India too like the rest of the world has to live with them.