NEW DELHI: If India believed that just like the first round of Iran sanctions, it could negotiate a softer deal with the US, those hopes were dashed.
After US administration officials said Indian companies would be subject to the same sanctions as everyone else if they dealt with Iran, particularly in the energy sector, India will now bring this to the discussion table during the 2+2 dialogue, referring to the combination of foreign minister Sushma Swaraj and defence minister Nirmala Sitharaman and their US counterparts Mike Pompeo and James Mattis.
Indian government sources say the US’ demands are “impractical” since there is a big difference between “significant reductions” and “zero” trade. During the pre-2015 round of sanctions, countries had to demonstrate they were consciously reducing energy imports from Iran. That helped India reduce its imports but maintain a relationship with Iran nevertheless. This time, that may not be the case, as US officials went on record to say they would not give out waivers to allies. “We view this as one of our top national security priorities. I would be hesitant to say zero waivers ever. I think the predisposition would be No, we’re not granting waivers,” they said.
The last time round, India had worked out a rupee-rial exchange system for India to pay for Iranian oil. In addition, Iranian government took on the reinsurance burdens. It's not clear whether these will be utilised in the same way this year.
Rupee Exchange System
Unlike what most think, oil trade does not have to be in US dollars, nor does anyone or any country have to have dollars to buy oil.
Oil Priced in Dollars Nonsense
One only needs dollars if one goes through the futures system to schedule oil delivery.
Otherwise, trade is in any currency that individuals, corporations, or countries agree on.
I would be surprised if oil is "not" trading in euros and yen, right now. Recall that at one point Venezuela demanded euros, not dollars for oil.
According to the pundits, that can't happen. According to pundits, oil for rupees cannot happen.
No Requirement to Hold Dollars
All the talk about the US going to war with Iraq because it was going to price oil in euros was then and remains sheer stupidity.
There is no requirement to hold dollars to buy oil. Those who believe so have a poor understanding about global trade.
With that out of the way, let's return to the situation at hand.
Here is the question: Will India or China be willing to stand up to Trump?
If India, China, and the EU all got together and told Trump to go to hell, this sanction madness would end tomorrow.
Skirting the Sanctions
That idea depended on an agreement between India and Iran to trade oil for Rupees, then converted into Bitcoin, then into dollars or euros.
It seems Trump will not allow that.
Unless Iran can find a way around the sanctions, expect global trouble.
Another oil shock is on the way.
Mike "Mish" Shedlock