India assures alternate sources for oil but sanctions on Iran can impact relations

India, the second biggest buyer of Iranian oil, has lined up alternate sources to make up for the likely shortfall in supplies after the US decided not to give waiver from its sanctions for buying oil from the Persian Gulf nation.

United States is set to announce on Monday that all countries including India, which are currently importing Iranian crude oil, will either have to end their imports completely or be subjected to US sanctions from May 2. The six-month waiver granted by the US to 8 countries was to expire on May 2.

"We have optional volumes (over and above the term contracts) from a number of suppliers which we can exercise to make up for any shortfall from Iran," a top Indian source said. "We can also go to the spot (or current) market to source crude."

"As far as Indian Oil is concerned, supplies will not be a problem. We have already lined up alternate sources," he said.

IOC has the option to take 0.7 million tonnes of crude oil from Mexico on top of its committed purchase of 0.7 million tonnes during the year. From Saudi Arabia, it has an optional volume of 2 million tonnes on top of a term contract of 5.6 million tonnes. Similarly, it has optional volumes of 1.5 million tonnes from Kuwait and another 1 million tonnes from the UAE.

India, the world's third-biggest oil consumer, meets more than 80 per cent of its oil needs through imports. Iran in 2017-18 was its third-largest supplier after Iraq and Saudi Arabia and meets about 10 per cent of total needs.

Impact on global oil prices and international relations

In November last year, the State Department had issued 180-day waivers to eight countries to give them more time to find alternative sources of oil. The decision to end waivers has been viewed as US President Donald Trump's maximum pressure on Tehran to curtail its nuclear program and stop backing militant proxies across the Middle East.

The impact of the US decision not to renew the waiver may reflect on global oil prices which may temporarily go up.

China and India are currently the largest importers of Iranian oil. If the respective countries fail to pay heed to Trump's demands it may cause tensions in bilateral relations. South Korea and Japan are relatively less dependent on Iranian oil and have already been treading lightly.

The measures, expected to have implications on the oil markets, were decided after Trump discussed the issue with the United Arab Emirates' Crown Prince Mohammed bin Zayed al-Nahyan last Thursday. "The policy of zero Iranian imports originated with Secretary Pompeo," a senior State Department official was quoted as saying.