Washington last week announced it was putting an end to six months of waivers on sanctions for certain countries purchasing oil from Iran. The White House said exceptions for countries still buying from Iran – including India, China, Japan, South Korea and Turkey – would stop on May 1. Indian imports over 80 percent of its crude oil needs, leaving it vulnerable to oil price surges. Iran is the third biggest supplier of oil to India, accounting for 11 percent of the total amount imported.
In return, India is the second biggest buyer for Iran, meaning the decision to end exemptions from sanctions could have ramifications for both countries.
Vandana Hari, founder of Vanda Insights, a global energy markets portal, told AFP: “US sanctions on Iran is a double whammy for India after the Venezuelan sanctions.
“It will have to pay more for imports and face higher foreign exchange outflows.”
This sentiment was shared by Swissquote Bank who said the move from the US could be detrimental to the Indian rupee.
The bank said in a note to FXStreet: “Although oil prices below $80 are not expected to disrupt consumer prices directly, the removal by the US of Iran oil waivers could weigh on the Indian economy.”
Oil prices fell today after being dragged down by record US crude production that led to a surge in inventories.
Brent crude oil futures were at $70.71 per barrel at 3.11pm UK time.
Brent is set for a weekly loss, which would break its longest string of weekly gains for a year.
India buys mostly from Saudi Arabia but has a long history of purchasing Iranian crude oil.
Meanwhile, the rupee had gained strength against the US dollar today and was trading at 69.35 at the time of writing.
The rupee had caught some breathing space against the American greenback after the US currency was weakened by the Federal Reserve leaving interest rates unchanged.
The Fed kept rates at 2.5 percent and signaled little desire to adjust monetary policy anytime soon, despite pressure from US President Donald Trump to enact a cut.
Last week the Reserve Bank of India (RBI) set a cut-off at its second US dollar-rupee swap auction at a much higher than expected premium.
The move indicates the system is flushed with dollar liquidity that banks are struggling to find buyers for, dealers said.
The RBI set a premium of 8.38 rupees at the three-year buy-sell swap auction and accepted the entire planned $5billion up on offer.