Delhi is currently Iran’s second largest oil consumer and purchases around U.S. $11.5 billion of Iranian oil each year at current prices, according to Bloomberg News. This trade has become increasingly strained as the United States and European Union have enacted third party sanctions against countries that continue doing business with Iran’s energy and financial sectors. Indeed, according to Oxford Analytica, the current terms of the trade are Iranian oil for Indian commodities instead of cash.
Although the U.S. has provided India with a waiver from its sanctions because Delhi has reduced the amount of oil Iran purchases, the EU has threatened to stop insuring India’s refineries if they continue processing Iranian oil. Meanwhile, OPEC members like Saudi Arabia, Iraq and Kuwait have also reportedly assured the refineries that they will use their own oil reserves to make-up for the loss of Iranian oil should India halt its purchases. Currently Delhi imports more than 300,000 barrels per day (b/d) of Iranian crude.
India’s oil ministry has yet to make an official announcement on the matter.
If the reports are accurate, however, it would be a significant blow to Iran’s already grim economic outlook. Since sanctions went into effect last summer Iran’s oil customers have been reduced almost entirely to India, China, South Korea, and Japan, with India purchasing an estimated 25 percent of Tehran’s oil exports.
As The Diplomat reported last week, China’s investment and bilateral trade with Iran declined sharply in 2012, mostly as a result of Western sanctions going into effect. In the first two months of this year, however, Beijing increased its oil imports from Iran by 2.7 percent.
Meanwhile, Japan and South Korea will also reportedly reduce the amount of oil they purchase from Iran by between 5-15 percent at the start of the new financial year next month. Already Japan reduced its oil imports from Iran by nearly 40 percent in the six months between August 2012 and January 2013. South Korea reduced its oil purchases from Iran by 30 and 25 percent in January and February of this year respectively.
In January Iran’s oil minister told parliament that oil sales had declined by 40 percent in 2012. The FY 2013 Iranian budget (yet to be passed), for the year that began March 21, forecasts a 40 percent decline in oil revenue year-on-year. This figure was based on Iran selling between 0.9 million b/d and 1.3 million b/d in 2013, a quarter of the approximately 4 million b/d Iran sold in 2010 and roughly half the 2.2 million b/d it sold in 2011.
Supreme Leader Ali Khamenei brushed aside these concerns in his speech marking the Iranian New Year last week, when he said the past year “had its sweet moments and bitter moments, its victories and defeats.” Regarding sanctions specifically, Khamenei told his audience:
“Sanctions had some impacts but caused a positive movement within ourselves to use our great capacities and talents. With its successes, our nation proved that living independent of USA does not mean being behind others.”
He went on to say “the fields of economics and politics are of primary importance” in the year ahead, which he named ‘The Year of Epic Politics and Epic Economics,” following closely on the themes of previous years, such as “The Year of Economic Jihad,” and the “Year of National Production.”
Zachary Keck is assistant editor of The Diplomat. He is on Twitter: @ZacharyKeck.