If one was to view the ongoing global oil crises from an economic perspective, it is pretty clear the United States and Islamic republic of Iran are involved in what economists term a ‘chicken’s game’. The game, an element of game theory, is a phenomenon in which both parties charge at each other with full force, in the hope that the opponent would ‘chicken’ out. Except in the case of this crisis, neither the US nor Iran seem to be backing out – which has caused a catastrophic volatility in global oil markets
The US’s age old strategy of dominance by way of economic sanctions (in this case CAATSA) and military dominance troop movements in the Arabian peninsula) have not been able to deter Iran from progressing with uranium enrichment and disruption of oil supply in the strait of Hormuz. Iran too is hell bent on testing US’s patience, due to which the two world powers are now at the brink of war.
But the larger, more indirect impact of this geo-political conflict is being borne by innocent buyers such as the Republic of India.
Joint Comprehensive plan of action- 2015
The joint comprehensive plan of action was deal that was struck of between Iran and the P5+1 nations on July 14, 2015. Under JCPOA, Iran agreed to eliminate its stockpile of medium-enriched uranium, cut its stockpile of low-enriched uranium by 98%, and reduce by about two-thirds the number of its gas centrifuges for 13 years. For the next 15 years Iran will only enrich uranium up to 3.67%. To monitor and verify Iran’s compliance with the agreement, the International Atomic Energy Agency (IAEA) will have regular access to all Iranian nuclear facilities. The agreement provides that in return for verifiably abiding by its commitments, Iran will receive relief from U.S., European Union, and United Nations Security Council nuclear-related sanctions.
In return for these relaxations, Iran was committed to receive relief from various USA, EU and security council reactions. This deal in a way also meant a peaceful and friendly coexistence between Iran and the USA.
However, under the Trump administration, it was believed by Donald trump and his advisers that the United States were on a lower footing in this particular deal and Iran had not been fully loyal towards their agreements, owing to which the administration on 8thmay 2018 announced its withdrawal from the deal.
Current scenario
The current scenario is perhaps most tense since the start of the JCPA. Last week there was a news that Iran had shot a US drone which according to the latter was flying in International flying space, however Iran reiterates the fact that it was there present in its local airspace and the USA violated basic international law. Amidst the various sanctions being put on Iran the Iranian government has told in open that it will not cut down on its medium enriched uranium stockpile, but will rather increase its stockpile if the sanctions are not lifted
We must understand here that currently there are 3 major blocks which play a very important role in the oil production and its export all over the world, and those 3 are notably, the USA, Russia( though reduced in recent years) and the OPEC countries which involves Iran as a major play. Oil being such a volatile component is severely affected in terms of its global pricing if there is any disruption in its demand and supply networks.
What’s interesting to know is that 1/5thof the global oil trade supply happens in the strait of Hormuz which is a strait between the Persian Gulf and the Gulf of Oman. On its north coast lies the Iranian republic, which de jure controls the strait. More animosity between the region can hamper 1/5thof the global oil supplies which will mean severe rise in the prices of oil globally.
Affect on India and what shall it be its response
Caught in the middle of all that are tankers, sailors, and commuters who have nothing to do with the “maximum pressure” campaign the U.S. is waging against Iran. India officially is the third largest importer of oil in the world in order to ensure that its growing population gets a ready support of energy. A major chunk of India’s oil imports was from Iran.
However, owing to the sanctions that have been placed by the USA on Iranian oil India severely needs redirect its oil importing channels. India was Iran’s second largest importer of oil after China.
On 26thJune 2019, Mike Pompeo, the US secretory of state visited India and has ensured that amidst the sanctions under the CATSA program India will get a ready supply of it’s oil needs from the USA.
India, the world’s third-biggest oil importer, bought about 184,000 barrels per day (bpd) oil from the United States over November 2018 to May 2019, compared with about 40,000 bpd in the same period a year earlier, the tanker data obtained from shipping and industry sources showed.This clearly shows how India has shifted to the USA in order to get its oil supplies.
“Venezuela’s oil output is now declining. Saudi grades are costly, and Iraq has limited capacity to sell extra oil. So Indian refiners can’t escape from U.S. oil,” said Sri Paravaikkarasu, director for Asia oil at energy consultancy FGE.
However, the future of global prices currently do revolve around the practices of both USA and Iran, because as we did read already that these are two major powers which ensure the smooth supply as well as demand of oil.
Countries like India regularly must do a cost- benefit analysis and keep in mind their foreign policy while taking any significant measures as one wrong move can seriously be used or perhaps perceived in a wrong way.
References
https://www.theatlantic.com/politics/archive/2019/06/tanker-attack-gulf/591631/
https://en.wikipedia.org/wiki/Joint_Comprehensive_Plan_of_Action
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