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International Relations

India to keep importing oil from Iran, brushing off US pressure

Despite sanction threats, New Delhi puts priority on obtaining low-cost energy

Indian Prime Minister Narendra Modi, right, and Iranian President Hassan Rouhani talk during a reception in New Delhi on Feb. 17. Securing ample supplies of energy is a crucial matter for India to support its economic growth.    © AP

NEW DELHI -- India is set to defy the Donald Trump administration's sanctions by continuing to import oil from Iran even after the U.S. curbs start kicking in from Nov. 4.

"Two of our [oil] companies made nominations [a few days ago] to buy oil from Iran in November," India's Oil Minister Dharmendra Pradhan said at an energy forum in New Delhi this week, without naming the companies. "We do not know whether we will get a waiver [from the U.S.] or not but the companies have booked [the oil]."

The minister's comments assume significance as oil importers are facing increasing pressure from the Trump administration to slash purchase from Iran to zero by next month. In May, the U.S. pulled out of the 2015 nuclear deal with Tehran, reimposing economic sanctions that will target Iran's crude oil consumers from Nov. 4. It has threatened secondary sanctions if the countries continued to buy oil from Iran.

India's latest moves that defied the U.S. threats of sanctions show that the country will not succumb to pressure from Washington and would rather keep its national interests in mind when making strategic decisions. India is the world's third largest crude oil buyer and imports about 80% of its fuel requirements. Its overall oil imports during the last fiscal year ended in March totaled $109.11 billion, up 25.47% from a year ago.

Although Pradhan did not name the companies that will buy the Iranian oil next month, local PTI news agency reported that state-run Indian Oil Corp. and Mangalore Refinery and Petrochemicals have together contracted for 1.25 million tons of crude from the Persian Gulf nation in November. 

New Delhi is reportedly exploring the possibility of settling transactions with Iran in rupees in a bid to reduce its exposure to the dollar and support the sliding domestic unit, which this month breached the 74 mark against dollar, while Tehran can use the payment to fund its imports of pharmaceuticals and other products from India.

In September, U.S. Secretary of State Mike Pompeo demanded that India stop importing crude oil from Iran, at their two-plus-two talks in New Delhi, but India did not give a clear answer.

India, which enjoys close diplomatic ties with Iran and has also recently started warming up to the U.S., is Tehran's second-largest oil customer after China, which is engaged in a trade war with Washington. China too has made it clear that it will continue buying Iranian crude. For India, Iran is the third largest oil supplier after Iraq and Saudi Arabia. 

India is also mindful of the fact that it may have to reduce oil purchases from Iran, if not cut them entirely. It will then have to look to other countries to fill the gap in supplies. Pradhan told reporters separately that India expected major producers like Saudi Arabia to increase production.

India's clear indication that it will continue to import Iranian crude follows Prime Minister Narendra Modi and Russian President Vladimir Putin concluding a $5 billion deal last week for New Delhi's purchase of Russian S-400 Triumf missile systems despite the U.S. threat of sanctions.

But keeping trade relations with Iran may have serious consequences. Moody's Investors Service recently pointed out in a note that U.S. sanctions on Iran's crude oil are credit negative for Indian refiners, given the size of trade in recent years.

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