A life without Iranian oil (Indian Express)

Mains Paper 1 : India and Its Neighborhood - Relations
Prelims level : Not Much
Mains level : Heated US-Iran relation and its impact of India and the World

Introduction

•  India and seven other countries will not be able to import cheaper Iranian oil without attracting US sanctions after May 1when the Donald Trump administration will end all the waivers.
•  The US decision has jacked up global oil prices, which can potentially put the ruling party at a disadvantage in the latter stages of the ongoing general elections.

Key highlights

•  Oil topped $74 a barrel on Monday, its highest in six months on fears of shortage due to expected removal of supplies from Iran.
•  Washington, however, said the sanctions, aimed at pressuring Iran to curtail its nuclear programme and renegotiate with US, will not hurt global oil supply.
•  Washington had reimposed sanctions on Iran in November after pulling out of a 2015 nuclear deal between the Islamic Republic and six global powers.
•  The US had granted waivers that allowed India and seven other countries to continue importing reduced quantity of Iranian oil for six months ending May 1.
•  Indian officials and oil companies’ executives said refiners have already made alternative supply arrangements for May and are lining up supplies for June.

Concern for India

•  India is the second biggest customer of Iran and imported about 24 million tonnes of crude oil in 2018-19. Indian Oil which imported 9 million tonnes of Iranian oil in 2018-19. The maximum for a refiner in the country is seeking to source additional supply from Kuwait, Abu Dhabi, Saudi Arabia, the US, and Mexico by exercising the option to source additional volume from these suppliers with who it has annual term deals.
•  Mangalore Refinery (MRPL) and Bharat Petroleum (BPCL) are other key importers of oil from Iran.
•  Indian refiners hadn’t finalised the annual term deal for 2019-20 with Iran that usually begins in April every year.
•  Officials said they were studying the US decision on waivers and its implications, but Monday’s announcement wasn’t going to be the end of negotiations between the two countries.

Conclusion

•  Rising crude oil rates push prices of petrol and diesel in the international market to which domestic rates are linked.
•  Higher oil prices also weaken rupee as India imports 84% of its oil needs.
•  The combined effect could lead to higher domestic rates of petrol and diesel in the poll season, until state-owned oil marketers decide to absorb the higher rates.
•  Theoretically, state companies are free to price fuels according to international rates, but they come under pressure from the government to keep rates low, particularly during polls.
•  Domestic fuel rates have changed little in a month while international crude oil prices have jumped $7 a barrel, or about 10%, in the same period.

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General Studies Pre. Cum Mains Study Materials

Prelims Questions:

Q.1) With reference to economy, stagflation occurs when there is:

1. Decline in economic growth
2. High unemployment
3. High inflation

Select the correct answer using the code given below.
(a) 1 and 2 only
(b) 1 and 3 only
(c) 2 and 3 only
(d) 1, 2 and 3

Answer: D

Mains Questions:
Q.1) Describe the key impacts of Iranian oil over India.