Even if India finds ways around US sanctions, oil imports from Iran will decline

US secretary of state Michael Pompeo and defense secretary Jim Mattis are scheduled to arrive in New Delhi this week to participate in the 2+2 Ministerial Dialogue with India.  An important item on the agenda is expected to be negotiations over the timeline that India will accept to reduce its oil imports from Iran.

The context to it is the re-imposition of US economic sanctions on Iran after it pulled out of the Joint Comprehensive Plan of Action last May. The unilateral pullout of the nuclear deal by US has put countries such as India in a difficult situation as it is impossible to ignore America’s unilateral sanctions on account of its economic clout. Firms are unlikely to risk being blacklisted by US.

Iran is important to India for two important reasons: strategic and energy.

India’s dependence on Iranian oil has increased over time. According to oil ministry data presented in Lok Sabha in July, the percentage of Iranian oil in India’s total oil imports has grown this calendar year.

From 9.5% in January, it increased to 16.5% in April. In May, it declined to 16%.

In a separate instance in Lok Sabha, data presented by oil ministry showed that in the first quarter of 2018-19, India imported 5.67 MMT of Iranian oil, making the country the second most important source of oil after Iraq.

It is not easy for a country such as India which relies heavily on crude oil imports to quickly replace its second largest supplier. Moreover, there is a strategic dimension to India’s relationship with Iran, which was strengthened when the latter’s president Hassan Rouhani visited India in mid-February.

India may not have too much room to manoeuvre but it is very unlikely that it will entirely stop Iranian oil shipments. There are ways around but that may not prevent a decline in Iran’s share in India’s total oil imports.