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Trump geopolitics will queer pitch for India

Trump geopolitics will queer pitch for India
Highlights

President Donald Trump\'s decision to withdraw the US from the Iran nuclear deal and reinstate all sanctions has triggered turbulence in energy markets. The price of the US crude oil has spiked above 70 dollars per barrel. With Venezuelan production also expected to drastically decline in the coming weeks, analysts fear that the only way oil price will go is up. 

President Donald Trump's decision to withdraw the US from the Iran nuclear deal and reinstate all sanctions has triggered turbulence in energy markets. The price of the US crude oil has spiked above 70 dollars per barrel. With Venezuelan production also expected to drastically decline in the coming weeks, analysts fear that the only way oil price will go is up.

This may be good news for Saudi Arabia, but for nations like India this is a real bad news. Increased geopolitical tensions in the Middle East, plunging Venezuelan production and the US pullout, put together, are expected push Brent Crude prices to 82.50 dollars a barrel by summer.

Iran is the third largest producer in the Organization of the Petroleum Exporting Countries (OPEC) which makes it a heavy hitter in the production of oil. A fall of 5 lakh bpd of Iranian crude oil supply would up oil prices by around 6.2 dollar a barrel. Exports of oil from Iran to Asia and Europe will decline later this year and into 2019 forcing those to look for alternatives to Iranian crude oil deliveries.

The US had overestimated its own capacity to supply its shale with hundreds of rigs suspended when price of Brent crude fell below 50 dollar a barrel. Insufficient pipeline capacity has affected its production at the heart of US shale boom in west Texas. Foolish policies of Trump will only benefit his friend Saudi Arabia and one others.

India must be wary of this. In fact, the crude challenge to Narendra Modi's government is far greater than that to any other country. It not only stems from the Iranian crisis, but also because of the Venezuela's unfolding crisis. US producer ConocoPhillips is attempting to take physical control of the Venezuelan facilities at Curacto and Bonaire where its state oil company owns refining and storage facilities, following an arbitration award against Venezuelan assets. The latter is simply telling its suppliers not to ship oil to these facilities for fear of takeover of those supplies too.

This would potentially shut down Venezuelan oil refining process itself and Venezuela cannot supply its heavy oil products without the products imported from the US to enable its thick oil to be transported. This is the first part of the challenge for Modi. The second one comes from the situation that would play out if the US halts exports to Venezuela its diluent. Such a move would imperil the latter's remaining oil production. If India had imported 4.46 million barrels per day of oil till March this year, 4,58,000 bpd has come from Iran alone.

India had earlier adopted a two-pronged strategy to deal with the EU ban. It allowed state-run oil refiners to buy crude with ships and insurance arranged by Teheran on a case-to-case basis. It also asked state-run United India Insurance to provide cover to Indian ships hauling Iran crude for state-run oil refiners. It’s time Modi decides to gently defy the US ban on Iran and apply a similar two-pronged policy to deal with the crisis now.

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