India has started to feel the heat of the US sanctions against Iranian imports. The imports from the Gulf nation has fallen in the first half of August, a report by Edelweiss Securities Ltd showed referring to data from FGE, a global oil and gas consultancy. Although the US sanctions will be effective from November 4, the premature effect is already visible.
The weak import numbers in August comes after strong imports in July. Iran was the second highest oil supplier to India between April and June period, piping Saudi Arabia. India is likely to face an uphill task to look for the options to sustain oil imports from Iran, the third-biggest crude supplier after Iraq and Saudi Arabia.
The report on Edelweiss Securities Ltd. stated: "As India explores alternative supplies, import costs are likely to rise as Iran offers extremely competitive terms, which include, among others, free shipping and extended credit terms of about 60 days." It is to be noted that India is facing an additional burden due to a weak Indian rupee against US Dollar.
India is likely to bow down to US sanctions and may cut its oil imports from Iran by half to secure a waiver from the US to continue with the shipments.
The report highlighting the need for an alternative source of the supplier on a reasonable price mentioned that "in the absence of waivers, Indian refiners will have to seek alternatives that are likely to be more expensive."
The effect of these sanctions will be visible on a global scale and the prices are also expected to rise with strong demand and Venezuelan crude oil production in a sluggish state. It would also be interesting to see if the supplier is able to compensate for the lack of supplies.
Although Saudi has promised to increase the production of the crude oil, Iran has raised its protest in OPEC (Organization of the Petroleum Exporting Countries) with the argument that a substantial chunk of one player can't be shifted to another.