Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Trump or Cheap Iran Oil: Dilemma Facing Fastest Growing Oil User

Published 07/17/2018, 06:00 PM
Updated 07/17/2018, 07:00 PM
© Reuters. Trump or Cheap Iran Oil: Dilemma Facing Fastest Growing Oil User

© Reuters. Trump or Cheap Iran Oil: Dilemma Facing Fastest Growing Oil User

(Bloomberg) -- The U.S. embargo on Iran oil shipments has put Prime Minister Narendra Modi in a quandary. If he plays along, India could find itself on the right side of President Donald Trump on trade but lose cheap supplies and precious foreign exchange.

Oil imports from Iran totaled about $9 billion in the year ended March and substituting some of the contracts with more North American crude will help India lower the $24.5 billion trade surplus it runs with the world’s largest economy. The South Asian nation is already buying more crude from the U.S., data from the Census Bureau and Energy Information Administration show.

While ending purchases from Iran will cost India savings on shipping costs and the longest credit period offered by any of its suppliers, there are gains to be had from paring the trade surplus with the U.S. -- at the heart of Trump’s trade war with China. For one, it will soften approach on thorny issues such as it being named in the U.S. Treasury’s watchlist of potential currency manipulators who use exchange rate to boost exports.

“The upcoming sanctions on Iran provide a golden opportunity to commercialize more U.S. oil in the Indian market,” said Abhishek Kumar, a senior energy analyst at Interfax Energy in London. “Escalating trade tensions between the U.S. and China will also be conducive to more U.S. oil coming to the Indian market.”

Narrowing trade surplus may also help India win exemption on tariff imposed by U.S. on some of products, including steel and aluminum. India, for now, has announced retaliatory tariffs on a slew of U.S. imports but said the room for talks are open.

Largest Volume

Crude imports from the U.S. rose 800 percent month-on-month to 4.72 million barrels in May, the largest volume since at least 2015 for which data is available. India, the world’s fastest growing oil user, could bridge the surplus by up to $4 billion through oil imports alone, government officials said in April.

But there are limitations to how much India can buy from the U.S. at the moment. The U.S. currently has only one export terminal that can accommodate 2-million-barrel supertankers preferred by faraway customers in Asia and expansions at other ports aren’t expected to be completed before 2020.

Indian Oil Corp., the South Asian nation’s biggest refiner, is working on possibilities of entering into term contracts for U.S. volumes, instead of the current practice of purchasing from the spot market, Chairman Sanjiv Singh said in an interview.

There’s potential for India to increase oil purchases from the U.S., whose first shipment reached the South Asian nation in August 2017 after Washington lifted its four-decade-long curbs on crude oil exports.

“The U.S. is focused on boosting its hydrocarbon exports to India,” said Interfax’s Kumar. “A wide front-month futures price premium of Brent over WTI will further provide a competitive edge to oil sourced from the U.S.”

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.