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More US oil may flow to India as Trump strives to tilt trade balance

Washington’s move to take the trade battle to New Delhi is unlikely to have a wider impact on commodity trade flows between the two countries, but could step up the pressure on India to eventually boost imports of commodities such as crude oil in the longer term.

Calling India “a very high-tariff nation,” US President Donald Trump earlier this week notified Congress that the US would end preferential treatment for many Indian products that currently enter free of duty, although the changes would not take effect for at least 60 days.

Trump has said India, along with Turkey, would no longer receive benefits under the Generalized System of Preferences or GSP that was set up to facilitate trade with developing countries.

But analysts and economists said other than gems and jewelry, textiles and some farm-based products, not many other commodity and energy products fall under that category, meaning the impact on the broader commodities and energy sector would be limited.

In addition, only 10% of India’s overall exports to the US fall under the GSP.

“The withdrawal of preferential treatment will impact $5 billion-$6 billion worth of exports to the US,” said Dharmakirti Joshi, chief economist at CRISIL, a unit of S&P Global. “This will hurt India’s exports in areas like textiles and gems and jewelry. India will have to improve its competitiveness to improve its export performance,” he added.

India’s annual trade surplus with the US has averaged about $20 billion over the past four years. The US has stepped up the pressure while arguing that India was not providing equitable and reasonable access to its markets in many sectors.

While Indian government officials have said the move is unlikely to have a significant impact on the country’s exports to the US, economists noted that India’s trade surplus with the US was a much smaller headache for Washington than the more than $300 billion annual trade surplus China has with the US.

“The move to terminate the preferential status to India should be seen in the broader context of US efforts to correct its deficits with most of its trading partners,” said Radhika Rao, economist at DBS Bank.

“Material impact from GSP changes will be modest — in nominal terms — on India’s exports to the US and overall exports. Nonetheless, this move is symbolic of the US stepping up pressure, which might prompt India to consider counter-measures in the short term but, longer out, might see assurances of higher purchases from the US to address the trade surfeit,” she added.

CRISIL’s Joshi added: “The objective of the US action is to reduce its trade deficit with India. So India needs to either import more or export less or do both for the US to achieve its aim.”

As a result, some US commodities, like crude oil, could flow in much larger volumes to India in coming years, some analysts and economists argued.

Uncertainty over India’s future strategy in buying crude oil from Iran as well as Beijing’s trade war with Washington have opened a window of opportunity for Indian refiners to dramatically step up purchases from the US since last year.

Private refinery sources in India say that an improvement in shipping logistics in the US has whetted the appetite of many Indian refiners to buy American crude on a regular basis.

“As much of the global supply growth will come from the US over the next few years, US crude oil exports will continue to rise and India, as a growing consuming country, is likely to increase its imports from the US among other countries, especially if it can get them at an attractive price,” said Lim Jit Yang, director for Asia-Pacific oil market analysis at S&P Global Platts Analytics.

US crude oil exports totaled 2 million b/d in 2018, up from 1.2 million b/d in 2017. Asia accounted for 45% of all US crude exports in 2018, up from 36% in 2017. Out of those volumes going into Asia in 2018, India accounted for 14%.

India’s annual contract in India for importing US crude was sealed in February. State-owned Indian Oil Corp. struck a deal to buy up to 3 million mt of various US crude grades for delivery over the next fiscal year, which starts April 1, in a move that highlights the company’s strategy to diversify its sources of term supplies.

“We may not see a sudden surge in US crude imports to India, but yes there is a gradual rising trend that we are seeing,” said Senthil Kumaran, consultant at Facts Global Energy. “Economics will be the main factor, and also there will be a cap to what extent US volumes could rise.”

Economists have recently said that rising trade tensions in the region would add to the headwinds in Asia-Pacific’s growth. The India-US trade skirmish has started at a time when there are yet no clear signs that China’s trade dispute with US will ease anytime in the near term.

“Trade is emerging as a major headwind for Asia-Pacific growth in 2019. The cyclical downswing in trade reflects cooling demand across the major economies but the impact of persistent trade tension may be surfacing even as the politics remain unpredictable,” S&P Global Ratings said in a research report in February.
Source: Platts

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