A crew man stands on the deck of the crude oil tanker ‘Devon’ as it sails through the Persian Gulf towards Kharq Island oil terminal to transport crude oil to export markets in the Persian Gulf, Iran. (Photographer: Ali Mohammadi/Bloomberg)

Trump or Cheap Iran Oil: Dilemma Facing Fastest Growing User

(Bloomberg) -- The U.S. embargo on Iran oil shipments has put Prime Minister Narendra Modi in a quandary. If he plays along, India could find itself on the right side of President Donald Trump on trade but lose cheap supplies and precious foreign exchange.

Oil imports from Iran totaled about $9 billion in the year ended March and substituting some of the contracts with more North American crude will help India lower the $24.5 billion trade surplus it runs with the world’s largest economy. The South Asian nation is already buying more crude from the U.S., data from the Census Bureau and Energy Information Administration show.

While ending purchases from Iran will cost India savings on shipping costs and the longest credit period offered by any of its suppliers, there are gains to be had from paring the trade surplus with the U.S. -- at the heart of Trump’s trade war with China. For one, it will soften the approach on thorny issues such as India being named in the U.S. Treasury’s watchlist of potential currency manipulators who use exchange rates to boost exports.

“The upcoming sanctions on Iran provide a golden opportunity to commercialize more U.S. oil in the Indian market,” said Abhishek Kumar, a senior energy analyst at Interfax Energy in London. “Escalating trade tensions between the U.S. and China will also be conducive to more U.S. oil coming to the Indian market.”

India has been preparing for alternative supplies after the U.S. decision to reimpose sanctions on the Persian Gulf state.

Narrowing the trade surplus may also help India win a possible exemption on U.S. tariffs on some products, including steel and aluminum. India, for now, has announced retaliatory tariffs on a slew of U.S. imports but said the room for talks are open.

Largest Volume

Crude imports from the U.S. rose 800 percent month-on-month to 4.72 million barrels in May, the largest volume since at least 2015 for which data is available. India, the world’s fastest growing oil user, could bridge the surplus by up to $4 billion through oil imports alone, government officials said in April.

Trump or Cheap Iran Oil: Dilemma Facing Fastest Growing User