India-Iran trade in the shadow of US sanctions

India and Iran have been trading partners for thousands of years. Iran’s major exports to India are oil, fertilizers and chemicals, and it imports cereals, tea, coffee, spices and organic chemicals from India, which leaves a heavy negative balance of payment of more than US$8 billion against India. Iranian oil is attractive to refiners in India as Iranian companies provide 60 days of credit for purchases, a term not available from other suppliers of crude such as Saudi Arabia, Kuwait, Iraq, Nigeria, and the US.

With the US reneging on a nuclear deal made with Iran and reimposing sanctions in November 2018, India is under pressure to halt trading with Iran. This leaves India with the tough task of choosing between the US and Iran. Losing out on the US as a trading partner is unthinkable and leaving Iran has the double implication of losing a traditional partner as well as a rich resource of oil and fertilizers, both areas where India is deficient.

To facilitate a smooth transition, six-month waivers from economic penalties were granted by the US to Iran’s biggest oil customers, China, India, Japan, South Korea, Taiwan, Turkey, Italy and Greece, allowing them to continue limited imports, and giving them time to find alternative sources and avoiding a shock to global oil markets. The US is, however, putting pressure on governments to reduce purchases of Iranian oil to zero, denying the Iranian government its main source of revenue. The first round of waivers expired 4 May, now exposing the countries to the imminent threat of sanctions.

Gautam Khurana is the managing partner of India Law Offices.

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