India - Post U.S. Sanctions on Iran

           Last November, President Donald Trump, announced new sanctions on Iran limiting its exports. India being one of the largest importers from Iran had six month long waiver along with countries like China, Turkey, South Korea, Japan, Taiwan, Greece and Italy. The waiver expired during the month of May, forcing India to look for other options. India had depended on Iran for almost 10% of its oil consumption. Before the waiver, the imports skyrocketed, leading to least amounts of shipping and transport. Before the waiver expired, many shipments were ordered, some were delayed and reached only after the mid of May.

            After the waiver expired, around the mid of May, it was predicted that the Crude Oil prices would soar, depending on the fact that Iran was one of the major suppliers of  crude oil. On 17^th May, the crude oil was at 4450 INR on the contrary, Indian economy was not very much affected by the waiver. The price suddenly kept decreasing till 6^th June to a price of 3604 INR, which was that months lowest. The drop was due to shipments coming in late from Iran, fortunately aiding to the oil supply for the country. These shipments were able to hold India together and thus India remained unaffected only for this period.

            The shipments ran out after a month, and India had to import again, causing increase in the prices till 26^th of June. The increase was gradual, thanks to OPEC cuts. The OPEC decided to cut down on production, which led to slight stabilizing of Crude oil prices worldwide. This increase went on till it reached a price of 4110 INR form 3604 INR.

           Later, OPEC predicted a decrease in demand, in response reducing supply, resulting in decrease of Crude oil prices worldwide. The prices were constant till 12^th of July. After that, a tropical storm came to India’s rescue; the storm affected Gulf of Mexico dropping oil prices to the lowest of the month, 3825 INR till 18^th July.

            The tremors caused by US sanctions have not affected India fatally until now due to these reasons. The aftershocks of the event are yet to come, and is expected to be brutal for all the Asian countries. This increase will affect macro as well as micro companies as said “Rise in crude prices also impact raw material supply chain of many manufacturing companies as India imports a major portion of its crude requirements. Impact on demand and higher input costs puts pressure on the operating margins and it has to be seen if this extent of price rise will be absorbed or passed on to consumers. Indirectly, there will be additional burden of freight cost for some companies. However, the negative impacts will materialize only if oil continues to sustain at elevated levels," by Vinod Karki, Vice-president (strategy) at ICICI Securities Ltd. 

by: Bilal Hussain

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