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Thursday, August 22, 2013

Persian Gulf ~ UN Sanctions - India oil imports from Iran

“Desh Shanthi” – would literally mean ‘peace of Nation’…

Recently, the US House of Representatives approved a bill aimed at completely closing off Iranian petroleum exports. Not since President Roosevelt told Japan in July 1941 that he was going to cut it off from American petroleum has the United States threatened to use oil to strangle a country so completely.  US and European Nations have been pursuing ban on trade relations by their sanctions against Iran.

This has its impact globally – still India has sought to  defy the sanctions as it had been heavily dependent on Iran for its petroleum imports. Those imports had fallen dramatically in April and since because European insurance firms, fearful of incurring US sanctions themselves, stopped insuring Iranian petroleum exports to Indian refineries. This being of a very high magnitude, insurance cover is generally granted only by PSU Insurers – who were also wary of extending insurance coverage for petroleum shipments from Iran citing lack of reinsurance back up.  According to Bloomberg, India has been preparing a $314-million insurance fund to cover future imports, as Indian insures declined to cover refineries process Iranian oil. On their part, the Iranians have this year taken delivery of seven supertankers, all made in China, to escape the sanctions dragnet

Sadly, Indian rupee is falling and everyday you get to read its touching the newer lows.  There are reports that today [22nd Aug 13] Rupee touched a record low of 65 for dollar  and 101 against Pound Sterling.  It is not rocket science to understand that when rupee value falls so, the imports (often denominated in US dollars) more expensive. Hence, India’s bill for imported petroleum went up starkly this year.

Though it could befuddle people like us, International finance is not easy to understand ~ often a transaction between India and another country is not valued in Indian rupees nor in the currency of the other contracting country, but in US dollars ~ especially when it is oil and natural resources.  As a succour, Iran had  offered to let India pay for its oil in rupees ~ leading to Iran importing many other products from India – benefitting India both ways – Iran cannot spend the Rupee currency earned through petroleum deal in a transaction with some other state.   

India has been facing a fuel crisis and inflationary trends are pushing the price of many essential commodities.  India’s fuel crisis is sufficiently severe for the country to risk a tiff with the US over the oil imports from Iran. India still does relatively little business with the US ~ but whether the powers that be would be bold enough to incur the wrath of US is a moot Q. 

It is another matter that months ago, United States exempted India and eight other countries from sanctions for importing oil from Iran, noting that these countries have significantly reduced their dependence on Iranian oil in the last six months. US Secretary of State John Kerry stated that India, China, Malaysia, Republic of Korea, Singapore, South Africa, Sri Lanka, Turkey, and Taiwan have qualified for an exception to sanctions under America’s Iran Sanctions Act, based on additional significant reductions in the volume of their crude oil purchases from Iran or for reducing those purchases to zero and remaining there. United States and the international community stand shoulder to shoulder in maintaining pressure on the Iranian regime until it fully addresses concerns about its nuclear program, Kerry said in a statement.

So India has a lot to do with Persian Gulf ~ the Arabian peninsula located in Western Asia between Iran and Arab.  This place was the focus of the 1980–1988 Iran-Iraq War, in which each side attacked the other's oil tankers. In 1991, the Persian Gulf again was the background for what was called the "Gulf War", despite the fact that this conflict was primarily a land conflict, when Iraq invaded Kuwait and was subsequently pushed back.  Even the name is disputed and called differently by different parties.

Be whatever, a recent occurrence in Persian Gulf has put India enormous pressure……… more of that in my next post…

With regards – S. Sampathkumar.

22nd Aug 2013.


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