Just a day before the US sanctions on Iran's oil trade became applicable, India's foreign Minister Sushma Swaraj made a last ditch effort to speak to her counterpart Mike Pompeo to seek flexibility. In November, the Donald Trump administration granted exemption -'Significant Reduction Exceptions' - to India, along with China, Greece, Japan, South Korea, Taiwan and Turkey.
The sanctions are part of the Trump administration's plan to bring Iran back to the negotiation table on their nuclear programme. The US has already withdrawn from the Joint Comprehensive Plan of Action (JCPOA), which the US, EU nations and Iran had agreed upon. The US wants these countries to bring their dependency on Iranian crude to zero.
Before Swaraj, finance minister Arun Jaitley had visited the US at the end of March, and one of the items on the agenda was to push for extension of the waivers.
Pompeo and his officials were in touch with their counterparts in India, and those in China, South Korea, Japan and Turkey. In last six months, Greece, Italy and Taiwan have reduced their Iranian oil imports to nil.
On India's request, Washington is non-committal. Swaraj's argument is that India is in between elections and the next government with a fresh mandate will take a final call on this issue. For India, Iran is a complex issue and a political as well as cultural solution is necessary to maintain its own fiscal balance.
Meanwhile, Indian oil companies are scouting for alternative resources. The US administration is pushing Saudi Arabia and the UAE to be the replacement for Iran's oil.
The oil prices at Brent - the scale at which India purchases most of its oil - spiked after the April 22 White House statement on waivers, to cross $75 a barrel. But the prices are mellowing after the clarification by other Middle East countries that they are getting ready to replace Iranian crude. On Tuesday, crude oil was trading at $72-73 a barrel.
India will also have to find a replacement for oil bought from the spot market, which is generally more expensive than long-term contracts, and the payments need to be made immediately.
Meanwhile, Saudi Arabia continues to charge a premium on all eastward bound oil cargoes (impacting India and China). This and other factors make the oil from Saudi companies more expensive by $7-9 than the Iran supplies. Back of the book calculations show that at current prices, on every $10 a barrel rise in crude prices, growth slows by 0.2-0.3 percentage points, and WPI inflation increases by 1.7 per cent. Some officials in the petroleum ministry in India say not importing oil from Iran is very difficult, nearly impossible.
In such uncertainty, oil marketing companies are also treading cautiously. Although officials are denying that prices are not being revised because of the ongoing general elections, in the last 10 days, prices have in fact been revised only thrice. The real impact will be known next week. Prices are corrected taking the weighted average of international prices of petroleum products the previous fortnight. Meanwhile, external affairs ministry officials have informally informed their counterparts in the petroleum ministry to make alternate arrangements.
India is in a fix. With neither Iran nor the US showing any inclination to blink first, the new government that will be formed will find it difficult to carve a path for itself in the present stalemate. To make matters worse, China, along with Turkey, has shown no inclination of adhering to the US diktat. China is one of the biggest buyers of crude oil from Iran, and the signs coming in from Tehran suggest it may actually decide to increase imports, if not maintain a status quo. The Turkish government, under President Recep Tayyip Erdogan, has been battling the US sanctions for the past one year, and is solidly backing Iran. Erdogan believes that the July 2016 'attempted coup' was orchestrated on US instructions.
Indian worries are more centred around what China does. Beijing has taken a much stronger and bolder stance. Chinese diplomats have opposed these sanctions as "unilateral" and "long-arm jurisdictions imposed" by the White House. They refused to toe the US line, and stated that China is "committed to upholding the legitimate rights and interests of Chinese companies and will play a positive and constructive role in upholding the stability of global energy market."
To India, Iran is more than an oil supplier; it is a strategic partner in the region. The recently completed port at Chabahar is India's entry point to central Asia. It also allows cargoes from India to bypass a hostile Pakistan. Along with this, Tehran has supported New Delhi in the fight against terror and have a larger role in Afghanistan, despite a strong opposition from Pakistan.
Many, however, believe that New Delhi is in a much better position to deal with the situation, and strike a balance between Iran and the US.
At present, with general elections under way and the political leadership seeking another mandate, diplomats are keen to maintain a status quo. As of now, there is no clarity whether the US sanctions will apply immediately if India continues to import beyond the deadline.
Meanwhile, New Delhi is unable to gauge how Tehran is taking the whole issue. President Hassan Rouhani said during an interview broadcast on state TV that Iran will defy the US sanctions and will continue to export oil. A few days back, foreign minister Mohammad Javad Zarif said they would not allow their crude to be replaced. Did he mean India? Currently, the White House doesn't mix economic diplomacy with regional security, at least when it comes to India. The White House maintained that ending the exemptions was not aimed specifically at India or intended to pit India against Iran. But that doesn't mean Tehran will practice the same, especially when they need friends.
Beijing and New Delhi have fast tracked the formation of a buyers' bloc. Most analysts believe the current stalemate will continue at least till 2020, when Donald Trump will go back to the US voters to seek another mandate. Meanwhile, the Asian power houses - who are also the second and the third largest importers of crude oil - are finalising their terms to take on the hegemony of oil producers.
Top of the agenda is to target the Asia premium charged by Saudi Arabia, along with jointly bargaining for oil. The common understanding is that a joint sourcing mechanism will erode Saudi Arabia led-OPEC's dominance on pricing. Mid-April, delegates from the National Energy Administration of China visited New Delhi to discuss the nitty gritty. The negotiations have been on since March last year. Both India and China are top buyers of Iranian crude, and a quick formation of this bloc will also help refiners strike better deals with the replacement suppliers.