Simultaneously, India also needs to work on long-term programmes to curb its dependence on imported oil. In an oil market with increasingly tight supply, this is sure to push up prices. With Iran under sanctions, INSTC too will be affected.India must also show its resolve by moving ahead with proposed investments in Iran.How will India be affected?The increase in oil prices will hurt India considerably. So India will have to live with this reality for the foreseeable future. Higher price of oil will also trickle down to wholesale essential oil bottle the end consumers — making diesel, petrol and air-travel more expensive.
It will damage the country’s trade balance, and may force the government to bring back subsidies on petroleum products such as diesel and petrol, as happened from 2004-14. Iran may be forced to cut down its oil production — as it had to do pre-2015, hurting global oil supply. Adding Iran sanctions to this mix compounds the problem.India is developing the Chabahar port in Iran to improve connectivity with Afghanistan and Central Asia. Low global oil prices of the past few years cut investment in developing new oil fields, reducing oil supply.8 million barrels per day in early 2018. New Delhi can revive this arrangement.6/barrel. This can throw India’s fiscal and trade deficit out of control.How can India safeguard its own interests?In the past, India bypassed the sanctions on Iran partly by moving the oil trade to Indian Rupees. Money owed to Iran was held in a Rupee account with UCO Bank and used by Iran to purchase goods from India. The US state department subsequently designated Iran as a state sponsor of terror since 1984. This trade was handled by the government-owned UCO Bank, which has no overseas exposure, and was less vulnerable to US sanctions. Even while the JCPOA was in force, Iran continued to remain under US sanctions which imposed significant constraints on its economy, some of which date back to the 1979 Islamic Revolution, when the US embassy staff were taken hostage.4 billion barrels of oil annually — and saved over $70 billion on its annual oil import bill in 2015-17. The Brent price, a widely used benchmark, crossed $77/barrel on May 10 — up by more than 50 per cent in one year.
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