Despite US sanctions, India to continue buying Iranian oil

Eileen GuzmanOct 08, 2018

Secretary of State Mike Pompeo announced on Wednesday the termination of the US and Iran's 1955 Treaty of Amity, Economic Relations, and Consular Rights following Iran's use of the document as justification to take the the United Nations' International Court of Justice (ICJ) over sanctions imposed by the Trump administration.

The World Bank has said that prices are likely to remain elevated the rest of the year and into 2019, affecting prices of basic goods in the region, which is import-reliant. Meanwhile, the remaining parties to the 2015 nuclear deal-namely, Britain, France, Germany, Russia and China-have vowed to circumvent the American restrictions through the creation of a "special objective vehicle" that could include a mechanism for bartering goods for Iranian oil. But the actual volumes imported may be far less as companies like Reliance IndustriesNSE -6.54 % have totally stopped buying oil from Iran and others too are scaling it down in hope of winning a sanction waiver from the US.

The UN's top tribunal unanimously ruled in its Wednesday verdict that the US must ensure that the re-instated sanctions are not impacting humanitarian aids or civil aviation safety.

As exports have fallen, domestic refinery runs have increased sharply.

However, another more pressing reason could be concern about how increased oil prices, particularly oil prices crossing the $100 per barrel threshold, may affect the global economy. Saudi Arabia and Iran are both members of OPEC.

Crude oil prices stayed steady Friday after a volatile week that saw the highest prices in four years. If Saudi Arabia and Russian Federation make up for the losses from Iran after sanctions, prices would remain within a range.

Late last month, President Donald Trump urged OPEC producers to ratchet up production levels to prevent further price rises ahead of the mid-term elections in early November.

In May, Trump pulled the United States out of the Iran nuclear deal despite objection from the other signatories, the UK, Russia, Germany, China, and France, re-imposing sanctions lifted under the deal.

Iranian crude oil and condensate exports slumped to just under 1.7 million b/d in September, a fall of nearly 700,000 b/d from May, according to Platts estimates. "But the price for the Saudi strategy to cover those supply losses are extreme low spare capacity, and that worries the market". Iran needs to continue down a path of economic self-sufficiency.

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