The United States has agreed to supply oil and gas to India on concessional terms after it terminated the waiver of import of Iranian oil. Earlier, the United States had asked India to support their sanctions over Iran and reduce oil imports to zero in six months following US sanctions on Iran became effective from November 5, 2018. The US granted a waiver to India along with 7 other countries for the next six month and waiver ends in the first week of May. But, the problem is that Iran is still a major source of India crude imports accounting for 10 percent. Therefore India would face problems after the waiver of lifted.
The United States has hinted that it would supply oil and gas one short notice if India faces a shortage. Major energy producers like Saudi Arabia and UAE have been asked to ensure the necessary energy supply to all friendly countries. India imports its supply oil from Iran on very friendly terms and gives 60-day credit to major India importers including Indian Oil Corporation, Mangalore Refinery and Petrochemicals (MRPL) and Nayara Energy (formerly Essar Oil). “The offer has been indicated and this needs to be worked out in detail post May 2, when petroleum-related Iran sanctions waiver is lifted on five oil importing countries including India. Transportation cost is an issue to bring oil from the US,” said the sources.
American shale oil production is expanding at an exponential rate. The forecasters expected an increase of 1 million barrels per day but the industry registered a growth of 1.53 million barrels per day which is almost 50 percent higher than the expectations. To put it in perspective, the addition in US shale oil capacity is almost equal to half of Iran’s total output for a year. The US emerged as the top crude producer with 12 million barrels per day, ahead of Russia and Saudi Arabia. The US does not seem to have any plan to reduce shale oil production in the upcoming months. In fact, American companies have planned to increase production.
In 2018, the United States became a net oil exporter for the first time in 75 years. The majority of US oil is flowing Asian countries like China, India, Taiwan, South Korea, and Japan. The flow of US shale oil to the international market will keep the global crude prices low. So the price of oil is going to be low in the upcoming year which is great news for the Modi government.
In the year 2018, India imported oil and gas worth 3 billion dollars from the United States. The Trump administration had complained about the huge trade deficit with India since assuming power, the reduction in the deficit will bring both countries closer as American complaints are being addressed. The crude imports from the United States will help the country in meeting the shortage created a due ban on Iranian oil imports as well as reduce the trade deficit with India. Therefore the United States will fill the gap created by Iran and India’s interest would not be hurt even after the oil import ban.