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US sanctions on Indian firm may abort Delhi’s plans to resume purchase of Iranian crude

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Washington’s decision to impose sanctions on Mumbai-based petrochemical trading company Tibalaji Petrochem Pvt Ltd for dealing with Iran may pull the plug on a reported plan by Delhi to resume purchase of Iranian crude, after a four year gap.

Ever since the US announced the sanctions on Iran in 2018-19 for walking out of a nuclear pact, India hasn’t been purchasing sweet crude from the Western Asian country, which used to account for over 10% its crude imports. However, the prospect of a rethink by India looked bright after prime minister Narendra Modi met Iranian president Ebrahim Raisi in Samarkand, Uzbekistan on September 16, on the sidelines of the 22nd meeting of the council of heads of states of the Shanghai Cooperation Organisation. Iranian officials have since sounded optimistic about India’s willingness to restart import of crude from Iran.

What boosted the Iranian side’s confidence about revival of India-Iran oil trade is open assertions by senior Indian government functionaries about the country’s resolve to buy discounted Russian crude, notwithstanding the western sanctions on Moscow.

India’s imports from Russia jumped 414% between April and July from a year before to $13.4 billion. Of these, purchases of oil and oil products accounted for as much as $11.2 billion, up almost 773% from a year earlier.

Washington has in recent months been targetting Chinese companies which it believed were aiding export of Iran’s petrochemicals, as the chances of reviving the nuclear pact with Tehran have become slimmer.

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According to a Reuters report, the US Treasury Department slapped sanctions on a network of companies involved in what it said was the sale of hundreds of millions of dollars worth of Iranian petrochemical and petroleum products to South and East Asia. The action targeted Iranian brokers and front companies in the United Arab Emirates, Hong Kong and India, the Treasury said. “India-based petrochemical company Tibalaji Petrochem Private Limited has purchased millions of dollars’ worth of Triliance-brokered petrochemical products, including methanol and base oil, for onward shipment to China,” it added.

Washington also iterated that it would continue to accelerate enforcement of sanctions on Iran’s petroleum and petrochemical sales so long as Tehran continues to accelerate its nuclear programme. “So long as Iran refuses a mutual return to full implementation of the Joint Comprehensive Plan of Action, the United States will continue to enforce its sanctions on the sale of Iranian petroleum and petrochemical products,” the Treasury’s Under Secretary for Terrorism and Financial Intelligence Brian Nelson said in a statement.

Already, following Russia’s attack on Ukraine, the US and its European allies decided to block certain Russian banks from the SWIFT financial-messaging infrastructure for cross-border payment. VTB, Russia’s second-largest bank by assets, VEB, another big player, and five smaller ones have been cut off from the SWIFT. This has adversely affected India’s trade transactions with Russia. While transactions can still happen through the Russian banks that are not under sanctions yet, foreign banks are not keen to deal with them in a big way.

Moscow had offered New Delhi rupee-rouble trade using Russia’s messaging system SPFS.

On its part, the Reserve Bank of India (RBI) had in July notified a new mechanism to settle international trade in rupees to reduce the depreciation of the domestic currency against the dollar. Already, Uco Bank and Yes Bank have firmed up arrangements with Russian banks under this mechanism, and more banks are supposed to follow suit.

US stocks: Wall Street tumbles as inflation data stokes bets of large rate hikes

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U.S. stock indexes fell sharply on Tuesday, snapping a four-day winning streak, after data showed monthly U.S. consumer prices unexpectedly rose in August, cementing bets of a third straight 75-basis-point rate hike from the Federal Reserve next week. All of the 11 S&P sectors declined in early trading, led by a 3.3% slump in the communication services sector. The small cap Russell 2000 index dropped 2.5%.

The S&P 500 growth stocks index, which houses rate-sensitive technology and growth stocks, fell 3% as Treasury yields rose, while its value counterpart lost 1.6%. Mega-cap technology stocks Apple Inc and Microsoft Corp fell more than 2.3% each, while Tesla Inc , Alphabet Inc, Amazon.com Inc and Meta Platforms Inc dropped between 2.7% and 5.6% to weigh the most on the S&P 500 and the Nasdaq.

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“The longer term view is pretty clear here, that monetary policy is a very blunt instrument and anybody that thought inflation would start to roll over just because the Fed hiked a couple times is pretty ignorant to the way economics works,” said Doug Fincher, portfolio manager at Ionic Capital Management.Policymakers last week emphasized their determination to keep raising rates until there is a sustained drop in inflation, which has been running at 40-year highs and above the Fed’s target of 2%.

Money markets now see an 81% chance of a 75-basis-point increase in rates and 19% chance of a whopping 100 bps hike by the Fed at its Sept. 20-21 meeting, while expecting rates to peak around 4.28% in March 2023.The dollar, which has risen sharply this year in part due to expectations of aggressive rate hikes by the Fed, erased early morning losses to climb 1%.

Also read| US equities slump after US inflation falls to 8.3%

The gap between yields on the two- and 10-year notes , often seen as an indicator of a looming recession, inverted further. Rate-sensitive bank stocks dropped 2%. At 9:46 a.m. ET, the Dow Jones Industrial Average was down 606.02 points, or 1.87%, at 31,775.32, the S&P 500 was down 94.40 points, or 2.30%, at 4,016.01, and the Nasdaq Composite was down 376.36 points, or 3.07%, at 11,890.06.

The three major indexes had rallied recently as investors took advantage of a sharp drop in stock prices since mid-August that was triggered by concerns over soaring inflation and the impact of tighter monetary policy to curb it.Eastman Chemical slid 5% after the company forecast a downbeat third-quarter profit, citing demand slowdown in consumer durables market, higher costs and a hit from a stronger dollar.

The CBOE volatility index, also known as Wall Street’s fear gauge, rose to 24.97 points.Declining issues outnumbered advancers for a 11.92-to-1 ratio on the NYSE and a 6.29-to-1 ratio on the Nasdaq.The S&P index recorded no new 52-week high and no new low, while the Nasdaq recorded 9 new highs and 62 new lows.