The cost of India’s oil imports is set to shoot-up as US sanctions are about to hit Iran. Though the US sanctions against Iranian oil imports will set in from November 4, India has already started to feel the impact. According to a global oil and gas consultancy, India’s oil imports from Iran in the first half of August fell considerably. While July saw substantial imports, August has been very bleak. But how are US Sanctions on Iran linked to 2019 Indian elections?
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The fears triggered by the US sanctions on Iran are making it difficult for India to sustain oil imports from Iran. Iran is among the top exporters of oil to India but that might change in the coming times. India’s oil imports costs are bound to rise, even though Iran offered competitive terms to India including free shipping and an extended line of credit.
Impact on Indian Elections 2019
Indian Rupee has been the worst performing currency in Asia recently and it is still struggling. The weak Indian Rupee will also have a part to play in the weighing on oil import costs.
The US has asked all nations to cease oil imports from Iran by November 4. India, South Korea and China are the nations which have urged the US for waivers on imports of Iranian oil. However, it is highly unlikely that the US would grant waivers to India without any preconditions. The US has vowed to bring Iran’s oil sales to zero after pulling back from the Iran Nuclear Deal.
A change in the price of $10 dollar per barrel will result in a 50 bps impact on the current account deficit of India expressed as a percentage of GDP. Higher oil prices, along with week currency will drastically push inflation to greater levels, which may impact the prospects of Modi government winning the upcoming 2019 Indian elections.
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