In more dour news for Iran, India (the world’s fourth largest oil importer) is planning to cut oil imports from the embattled OPEC member. India’s oil ministry has asked refiners to prepare for a ‘drastic reduction or zero’ imports of Iranian oil from November, Reuters said on Thursday, citing two industry sources.
The news comes as Tehran remains defiant over impending U.S. sanctions renewal and just days after India indicated it would push back against pressure from Washington to halt Iranian oil imports, stating that it did not recognize sanctions the U.S. has threatened to impose on countries that continue to buy Iranian oil after November 4.
"India does not recognize unilateral sanctions, but only sanctions by the United Nations," Sunjay Sudhir, joint secretary for international cooperation at India's petroleum ministry, told CNN earlier when asked whether India would reduce oil imports from Iran. After China, India is the largest buyer of Iranian crude oil.
President Trump said on Tuesday that the U.S. would level sanctions on countries that not did not cut Iranian oil imports.
Though India made an initial defiant stand, it simply can’t afford to alienate Washington since it has to safeguard its exposure to the U.S. financial system, a powerful tool that the U.S. can wield as it pleases since the dollar is the world’s reserve currency. This allows Washington to level crippling sanctions on a wide range of countries all the way from Russia to Venezuela to Iran and anybody else that any sitting U.S. president sees fit to punish. Related: Stranded BP Cargoes: A Red Flag For Chinese Oil Demand?
This economic weapon is also why Beijing is working feverishly to supplement or replace the U.S. dollar as the world’s reserve currency. In September, John Hardy, the head of FX strategy at Saxo Bank said China was “eyeing the benefits of having its own currency play a larger role and to supplant the USD's role in global trade. The initial focus is on the global oil trade, where it has announced the intention of buying oil in yuan and allowing trade partners to settle that yuan in gold." He added that settling in gold is a clever move by Beijing as it provides oil-exporting countries with a greater degree of comfort.
Scouting for oil supply alternatives
One of the Reuters sources on Thursday added that India’s oil ministry had held a meeting with refiners that day, urging them to scout for alternatives to Iranian oil. “(India) has asked refiners to be prepared for any eventuality, since the situation is still evolving. There could be drastic reduction or there could be no import at all,” said another source.
All of this first perfectly into the revamped U.S.-Saudi playbook over both global oil markets and geopolitics in the Middle East. Though Trump took a hard line against the Saudis during the 2016 presidential campaign, even calling for a halt to all Saudi oil imports to the U.S., as president he has become more pragmatic, working with Riyadh on a wide range of issues as the Saudis jockey for geopolitical hegemony over Iran in the Middle East.
Trump tweets impacts global oil
Trump, for his part, delighted the Saudis when he announced that sanctions would be reactivated against Iran, while the Saudis have seemingly become docile as Trump uses Twitter as the presidential bully pulpit to pressure OPEC to keep prices from spiraling out of control and hurting the U.S. economy ahead of the November mid-term congressional elections. All 435 seats in the House and 35 of the 100 seats in the Senate will be contested. The outcome of the election could largely dictate how the second half of Trump’s four-year term unfolds. Related: Oil Rig Count Falls Amid Stagnating Production
Trump said in another tweet on Saturday that Saudi Arabia’s King Salman had agreed to his request to increase oil production “maybe up to 2,000,000 barrels” to offset production from Iran and Venezuela.
“Just spoke to King Salman of Saudi Arabia and explained to him that, because of the turmoil & disfunction in Iran and Venezuela, I am asking that Saudi Arabia increase oil production, maybe up to 2,000,000 barrels, to make up the difference ... Prices to high! He has agreed!” Trump tweeted.
Some U.S. sanctions against Iran take effect after a 90-day “wind-down” period ending on August 6, and the rest, notably in the petroleum sector, following a 180-day “wind-down period” ending on November 4.
By Tim Daiss for Oilprice.com
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