The suspension of waiver for the five major nations importing oil from Iran is a significant development that can have multiple implications.
The US is at it again. Unable to bear with what it calls is a duplicitous fascist empire in Iran; the Trump administration has carried forward its embargo of the gulf nation by virtually crippling its oil exports to various countries including India. There is palpable anxiety & resentment amongst nations like Turkey & China who have voiced their exasperation at the new Trumpism. While this step wasn’t completely unanticipated, yet the importing nations had hoped that US would let them deal with Iran till they had found for themselves suitable & reliable partners after the deadline ended on the 2nd May. Neither has Indian foreign secretary’s pleading helped nor the much touted personal chemistry of the PM Modi been of any remedial effect in the immediate run.
What is of great academic & diplomatic interest is how China would react to such a unilateral diktat by Uncle Sam. Already the Chinese have dropped broad hints at continuing with importing oil from Iran. India being the second biggest buyer of Iranian oil, has lined up alternate sources to make up for the likely shortfall in supplies after the US decided not to give waiver from its sanctions for buying oil from the Persian Gulf nation. With threat of sanctions looming large, it remains to be seen how the allies like Japan, South Korea & Turkey would react to this development & how India & China, the two major economies would enact their future strategy. India has enjoyed extremely cordial relations with Iran & Chabahar port is a shining example of such strategically rewarding partnership between the two countries.
There is no doubt in anyone’s mind on why the US is racing ahead with fresh set of directives to the importing nations. While it attempts to bring the gulf nation to kneel & stay weighed down under the fresh sanctions, it is concurrently pushing its own exports along with those of the Saudi & UAE. Even Russia stands to gain by such a move & by now the world has a fair idea of the Putin – Trump equations. The strangulating of Iran’s exports that makes for its 40% of the economy shall certainly have a negative impact on Iran’s economy. Already the part embargo has had its effects & there is shortage of medicinal supplies & other important needs that the gulf nation is experiencing currently. The US economyis a natural beneficiary of such fallout of the dwindling exports out of Libya, Venezuela & Iran. It has already shore up its production & expects the dependent nations to buy oil from the US.
India also believes that the overall effect of any deficit oil supplies “will hinge to a large degree on the Saudis’ response to what is likely to be some strong requests from the Trump administration to increase productions appreciably”. Some analysts said “a severe loss in (Iranian) volumes will put pressure on the supply side, given the political uncertainty currently blighting other oil exporters, such as Venezuela and Libya. With the 2020 elections and the summertime surge in energy use drawing closer, President Trump has rallied for higher gasoline prices that have resulted from rising oil prices. Since the year’s start, world oil prices have risen roughly $20 a barrel, as Saudi Arabia and Russia have curbed production. The prices are now at their highest level in six months.
The clampdown on exports also risks exacerbating tensions with the five nations and hindering other administration policy priorities.
We also know that the United States is engaged in intense trade talks with China to try to end a trade war that Mr. Trump started last year. And it is working with China, South Korea and Japan on a policy for dealing with North Korea, which, unlike Iran, has a growing nuclear arsenal.By increasing sanctions, senior American officials are aiming to weaken the power of the ruling clerics in Iran and force major political change on the country. Iran may try to evade the sanctions by smuggling oil overland, including through Iraq, and shipping through the Strait of Hormuz.Iran threatened to close the strategic waterway, through which Persian Gulf oil transits to Asia, if it is blockaded by the United States. US secretary of state Pompeo mentioned about Zero game & also hoped that the countries impacted by this development shall fall in line failing which they run the risk of facing sanctions.
India has responded with cautious optimism. In a guarded manner foreign office has said that they have seen the announcement by the US Secretary of State & they are studying the implications of the decision and will make a statement at an appropriate time.”Ending the waiver is a disappointment for India, which had hoped for an extension of the exemption beyond May 2. Foreign Secretary Vijay Gokhale had discussed extending the waivers when he met US officials in Washington last month for the India-US Strategic Dialogue. It must be recalled that when the US tightened sanctions on Iran in November, India and seven other countries were given the exemptions, enabling them to continue buying oil.
Just in order that the fears of the effected nations are allayed, US have said that they stood by their allies and partners as they made transition away from Iranian crude to other alternatives.”
In this respect, the US is increasing oil production and working with Saudi Arabia and the United Arab Emirates (UAE) to ensure that there is no oil supply disruptions due to end of the waivers.
However, oil prices surged with first indications that waivers would end. Brent crude, which serves as the benchmark for oil prices, surged more than 2.5 per cent to nearly $74 per barrel, the highest in about six months. India was reportedly importing about 1.25 million tonnes of oil per month from Iran, about half of what it had been importing before the restrictions. Nearly 10 per cent of the 220 million tonnes crude oil India imported in 2017-18 came from Iran.
India like China has genuine concerns to think about. It’s vulnerability to US sanctions if it decides to continue buying Iranian oil will be through curbs on banks and oil tankers.China too has reportedly has put oil imports from Iran on hold, even when it forthrightly criticized the US on the decision calling this a long arm tactics & unilateral action by the US. .