US determined to help India find a substitute for Iranian oil

• On 4 October, the US’s National Security Advisor John Bolton said that it was “going the extra length” to help allies like India find a substitute for Iranian oil.
  
• The Trump administration’s sanctions on Iran kick in on November 4th, after which any countries purchasing oil from Iran could be subject to sanctions as well.
  
• This particularly concerns India, as it sources nearly 10% of its oil imports from Iran and benefits from low prices.

The Trump administration’s sanctions on Iran kick in on November 4th, after which any countries purchasing oil from Iran could be subject to sanctions as well.

This particularly concerns India, as it sources nearly 10% of its oil imports from Iran and benefits from incentives like extended credit terms and low freight rates. Furthermore, as it struggles under the weight of a growing fiscal deficit and rising fuel prices, it will be reluctant to completely cut down on imports from the country as Iranian oil is a lot cheaper than the oil it sources from other countries.

Taking note of this, the US has stated its intent to assist India in its search for alternatives. At a White House press briefing on 4 October, the country’s National Security Advisor John Bolton said that it was “going the extra length” to help allies like India find a substitute for Iranian oil at market rates. Bolton reiterated the US government’s zero tolerance for allies that maintained their commercial ties with Iran, explaining that there was limited scope for waivers.

This will no doubt send Indian officials into a panic as they were reportedly hoping for a temporary waiver from the US in lieu of slowly reducing their supplies from Iran. While there remains the option of gradually transitioning to a different supplier, the current US administration isn’t known for its patience.

In the meantime, refiners are preparing to circumvent sanctions by paying for Iranian oil in rupees. However, it remains to be seen how tolerant the US government will be of this measure.

Other suppliers

As part of the 2+2 US-India talks in September, India discussed purchasing more shale from the US. However, it made it clear that it’s primary considerations would be commercial. India's refineries are better equipped to handle Iranian crude oil, so switching to a different source entailed a lot of short-term costs. In addition, US shale has a much longer journey to India than crude oil from the Middle East.

In June, shortly after the US government announced its withdrawal from the Iran nuclear and the re-imposition of sanctions, Indian refiners were asked by the government to search for alternative sources of oil. At the time, it was speculated that these companies would have no choice but to substitute imports from Iran with more expensive purchases from its other main suppliers- Saudi Arabia and Kuwait.