The pullout of the U.S. from the Joint Comprehensive Plan of Action (JCPOA) means that sanctions are coming back into force. In light of that reality, many companies and countries are having to reevaluate their relationships with Iran. One key area is in oil.
Earlier this month, India’s Hindustan Petroleum Corp (HPCL) cancelled an Iranian oil cargo purchase because its insurance company refused to provide coverage for the crude. The refusal was due in large part to the U.S. sanctions. In early July, HPCL renewed its insurance coverage for accidents at is refinery or storage sites. The new policy would not protect against any incidents involving Iranian oil.
“The problem in procuring Iranian barrels appears to be happening much before the November 4 deadline,” said Senthil Kumaran, a senior analyst at consultants FGE. “Most of the reinsurance market is based in the U.S., so without the blessing of the U.S., Iranian oil buyers will find it almost impossible to take and process Iranian cargos.”
India is the second biggest buyer of Iranian oil
The purchase was canceled after HPCL could not find another buyer for the oil that would not be insured. India is the second biggest buyer of Iranian oil in the world, with China taking first place. Yet, if they are not able to get insurance, then many buyers in India are going to stop their shipments prior to the sanctions coming into effect, which could have a negative impact on the Iranian economy earlier than anticipated.
Some sanctions will be in effect in August, but the Trump administration indicated that all sanctions will be in full effect by November. Companies and countries are attempting to figure out how they will address the lack of Iranian oil in the international market. The U.S. is giving them until November 4 to wrap up and wind down their activities with Iran or risk the loss of access to the U.S. financial system. There are fears that oil prices will go up substantially as the oil supply tightens from the actions of the Trump administration.
Great Recession still fresh in many minds
While there are some members of the international community that applaud the actions of the U.S., others caution that it could have a ripple effect that negatively impacts more than just the Iranian economy, especially with the Great Recession still fresh in many minds.
Other Indian refiners may find that they have the same issue if they have to renew their policies before November, which could impact Iranian imports into India. While this is just one country, the question is how this will impact the international marketplace as other countries stop or severely limit the amount of Iranian oil they are purchasing.