Washington's demand for countries to cut all Iranian oil imports is going to be a massive headache for India.
As the world's third-largest oil importer and the second-largest buyer of Iranian crude after China, complying with the U.S. sanctions — enacted following President Donald Trump's withdrawal from the 2015 Iranian nuclear deal — will require India to find new sources of crude at a higher cost.
At a time of rising oil prices globally and a weakening national currency amid an emerging markets sell-off, this is going to hurt.
Washington may grant waivers for major importers of Iranian crude but still expects them to ultimately comply with sanctions, top U.S. officials said. Discussions on the issue, as well as on security issues and trade more generally, took place Thursday as the U.S. Secretaries of Defense and State, James Mattis and Mike Pompeo, met with their Indian counterparts in Delhi.
"We will consider waivers where appropriate but that it is our expectation that the purchases of Iranian crude oil will go to zero from every country or sanctions will be imposed. So we'll work with the Indians, we committed that we will do that," Pompeo told press at the summit.
India imports 70 percent of its energy needs, and fuel costs are hitting multi-year highs in the rapidly growing country of 1.3 billion people. And the rupee fell to a record low against the dollar this week as rising global interest rates and trade war fears rock emerging market currencies across the board. This, combined with the elimination of a major source of cheap crude, could have significant impacts on India's inflation and economic growth.
"We want to make the point that India is heavily reliant on oil imports for its consumption needs and 83 percent of its oil comes from external sources," one Indian official was quoted as saying in local Indian newspaper The Economic Times. Other senior officials have said outright that the country will not fully cut their Iranian imports and that doing so would be impossible.