India doesn’t see major fallout from US exiting Iran N-deal

India is treading cautiously on the US decision to re-impose sanctions on Iran. Reacting to the action, the Ministry of External Affairs said the issue should be resolved through peaceful dialogue and all parties should engage constructively.

While the External Affairs Ministry maintained that all parties should have a constructive dialogue with respect to the Iran nuclear deal, the Commerce Ministry maintained that there may not be much of an implication on trade.

Crude shock?

Crude price is a component that will affect all buyers. The US decision saw international crude price hit $77 a barrel, according to Bloomberg data (July contract). The price at which Indian refiners sourced their crude stood at $73 a barrel on May 8.

But, oil traders feel that this may not be a permanent phenomenon as even the US would not like crude prices to breach a certain comfort level.

“Let us wait and watch the fineprint. India is in a better bargaining position now,” said an oil industry expert. Commerce Secretary Rita Teaotia said the re-imposition of sanctions will not result in any significant dent on India’s trade with the country.

“There were sanctions in place on Iran for a number of years before they were partially lifted by the Obama administration. That did not see a huge increase in exports from India to Iran. I do not expect any major shift to happen in bilateral trade now (because of the fresh sanctions),” Teaotia said.

“There’s unlikely to be any impact on basmati exports to Iran,” said Gurnam Arora, Joint MD, Kohinoor Foods Ltd and past president of the All-India Rice Exporters’ Association.

Iran is the largest buyer of India’s basmati rice and accounted for 22 per cent of the 4 million tonnes of total shipments of the aromatic rice in 2017-18. Basmati shipments to Iran are currently on the rupee payment mechanism, which came into existence between the two countries in early 2012.

In fact, the earlier sanctions have already prepared India as far as crude oil imports from Iran are concerned, said a trader. Not only has India expanded its crude sourcing basket, he said, it has also found a mechanism to make payments in a currency other than the dollar.

Iran, which once was among the top suppliers of crude oil to India, had lost its position to Iraq. Though it climbed up the charts, India’s basket also boasts of supplies from Nigeria, Venezuela, UAE, Kuwait, Mexico and Russia among others.

Even American oil has found its way into India. While awaiting more clarity on the emerging developments, basmati rice exporters are hoping that like earlier, food and medicines will be excluded from trade sanctions.

Challenges ahead

Even if India continues its ties with Iran, challenges will be banking, insurance and shipping, as most of them have either huge business in America.

“India today is on a firmer ground as far as negotiating with Iran is concerned and there is no immediate panic situation. Let us wait for the fine print and see what are the things exempted under the sanctions,” said an analyst.

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