With the US wanting to squeeze Iranian oil trade, Indian consumers might end up paying more at the petrol pump

One of Donald Trump’s main agenda while contesting for the United States presidency in 2016 was that of being the “anti-Obama.” He promised to reverse many of the policy initiatives passed by former President Barack Obama. There was the Affordable Healthcare Act, the so-called Obamacare, which promised low-cost health insurance to millions of Americans. There was the Trans-Pacific partnership, a comprehensive trade deal with countries in the Pacific rim, notably excluding China. And then there was President Obama’s all-encompassing deal with the Islamic Republic of Iran. The deal, that was worked out between the five permanent members of the United Nations Security Council and Germany, was torn asunder when the Trump administration announced the reintroduction of sanctions on Iran. The US’ closeness to Israel and Saudi Arabia, both mortal enemies of Iran, was a major cause of this freezing of diplomacy. In the process, several nations, including India, have been caught in the crossfire. For many years, even under previous US sanctions, India has been a major consumer of Iranian crude to power its energy needs. In fact, Iran, without sufficient refining capacity of its own, imported refined petroleum products back from India. But the Trump administration, intent on making it tougher for Iran, is  squeezing all nations that buy Iranian crude. So all earlier allowances for nations allowed to trade with Iran, including India, are now being proposed to be revoked and in the light of their previous actions, the stricture is likely to go ahead. This despite India’s commitment to cut down volumes.

India might still be able to conduct a limited amount of trade with Iran  via some other countries but taking that country’s considerable oil and gas supplies off the global market will invariably lead to a rise in petrol and diesel prices at the pump. The Narendra Modi administration was blessed with relatively low crude oil prices for a large part of its term but the incoming Government that will be sworn in after the elections may not be so lucky. Managing high fuel prices and the consequent results of higher inflation coupled with several schemes being drawn up for cash doles to the poor might lead to a stressed economy. This will not be a good sign for recovery and put pressure on the rupee, which will in turn slow down FII inflows. India will need to negotiate hard to ensure that the fallout from Trump’s undeclared economic war on Iran does not have a collateral fallout here.