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U.S. To End Waivers For Iran Oil imports

Oil exports are a key source of revenue for Tehran, which has been hit hard by the reimposition of U.S. sanctions.

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U.S. Secretary of State Mike Pompeo (file photo)
U.S. Secretary of State Mike Pompeo. RFERL

U.S. President Donald Trump has decided not to reissue waivers in May allowing importers to buy Iranian oil without facing U.S. sanctions, the White House said in a statement on April 21.

The United States, Saudi Arabia and the United Arab Emirates “have agreed to take timely action to assure that global demand is met as all Iranian oil is removed from the market,” the White House said.

“This decision is intended to bring Iran’s oil exports to zero, denying the regime its principal source of revenue,” the statement added.

The decision means sanctions waivers for five nations, including China and India, Japan, South Korea and Turkey, won’t be renewed when they expire on May 2.

U.S.
The move is part of the Trump administration’s tough line on Iran. VOA

U.S. Secretary of State Mike Pompeo said Washington has had “extensive and productive discussions with Saudi Arabia, the United Arab Emirates, and other major producers to ease this transition and ensure sufficient supply.”

U.S. Senator Ted Cruz (Republican-Texas) applauded the end of oil waivers for Iran.

“This decision will deprive the ayatollahs of billions of dollars that they would have spent undermining the security of the United States and our allies, building up Iran’s nuclear and ballistic-missile programs and financing global terrorism,” he said.

The move is part of the Trump administration’s tough line on Iran.

“We will continue to apply maximum pressure on the Iranian regime until its leaders change their destructive behavior, respect the rights of the Iranian people, and return to the negotiating table,” Pompeo said in an April 22 statement.

oil-refinery
“This decision is intended to bring Iran’s oil exports to zero, denying the regime its principal source of revenue,” the statement added. Pixabay

Oil exports are a key source of revenue for Tehran, which has been hit hard by the reimposition of U.S. sanctions.

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Ahead of Washington’s announcement, an unamed Iranian Oil Ministry source told the semiofficial Tasnim news agency that the United States will fail to cut Iranian oil exports to zero.

“Whether the waivers continue or not, Iran’s oil exports will not be zero under any circumstances unless Iranian authorities decide to stop oil exports…and this is not relevant now,” Tasnim quoted the unnamed “informed source” as saying. (RFERL)

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Idea of Reducing Gold Imports Important

Regardless of the economic situation, utilising savings of the country for investments and thereby creating growth and jobs is a commendable

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Idea, Gold, Imports
The idea of reducing gold imports is important, but suggestions ranging from raising import duties further to imposing bans need to be reassessed urgently. Pixabay

Recent financial news headlines have seen some concern with India’s gold imports and the fact that a significant component of domestic savings is “exported” abroad, which could probably be utilised to spur investments and growth in India. The idea of reducing gold imports is important, but suggestions ranging from raising import duties further to imposing bans need to be reassessed urgently. Regardless of the economic situation, utilising savings of the country for investments and thereby creating growth and jobs is a commendable and much-required objective. However, policies employed to do so must be ones that positively incentivise savers to park their savings in investment options linked to the capital markets than in gold.

To facilitate the growth of the financial sector, the financialisation of savings further, if done well, can help the situation in many ways. Besides channelling investments into businesses through the capital markets, the assets can yield much needed social security through income-generating retirement funds as a generation of workers retires over the next few decades. But, to do so, one must look at structural factors that can induce savers to park their money in the capital markets over and above gold.

Over the last several years increased taxation through a steady rise in the dividend distribution tax, long-term capital gains tax, short-term capital gains tax and securities transaction tax has to some extent slowed down the long-term aim of capital markets being a point of interaction between the savings of investors and capital required by companies. It is essential that going forward policymakers look to address these issues to ensure that markets can operate with as low friction as possible.

The importance of a steady flow of savings into the capital markets is essential not just from an equity perspective, but more so from a debt perspective. The focus must be much beyond only the listed markets. Financial instruments traded in the private markets must be made attractive from a tax perspective to increase capital availability for Indian businesses. Essentially, the vital question the capital markets authorities must ask is are we making investing into companies through both debt and equity attractive enough for investors?

Idea, Gold, Imports
Recent financial news headlines have seen some concern with India’s gold imports and the fact that a significant component of domestic savings is “exported” abroad, which could probably be utilised to spur investments. Pixabay

Additionally, perceptions are critical to capital flow. Investment options will be viewed by market participants not just in terms of current regulations, but also in terms of the participants’ perception of future regulations. While incentives are the way forward, imposing controls on price and volumes will not lead to the desired outcome. Instead, with increased controls, a higher distortion in the market may be observed.

While there have been calls from a few quarters for imposing controls of some type on the gold market, what is needed now is to frame policies that channel savings into domestic assets through incentives. It is also essential to be aware of global trends that affect commodity markets. In an age of unprecedented quantitative easing, robust demand for gold is to be expected. While predicting the future path of global interest rates is difficult, an appreciation of global trends and policies that cater to the same will be essential.

The policy debate between utilising effective regulations versus controls to channel capital is one that has ramifications much beyond the discussion on gold. Given the need India has in terms of both domestic and foreign capital to finance new businesses, distressed assets, and the general credit markets, a reassessment of the incentive mechanism is essential now. Deregulation and stable policy on the supply side, especially taxation policy, are going to be the biggest drivers of both domestic and foreign capital into India.

Capital availability for a country is incumbent upon the three main pillars: (i) of adequate financial instruments and vehicles that investors can utilise, (ii) taxation policies that determine returns from the aforesaid instruments and vehicles and (iii) most importantly, a stable policy regime. The government and stakeholders must continually evaluate as to how to improve upon the three pillars of capital availability, mentioned above.

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As India looks to source capital, a relook at the policy frameworks is critical to incentivising savings into channels that can help create capital for investment and growth. The focus must be on incentivisation, as opposed to further controls that may distort the market. (IANS)