India has been preparing for alternative supplies after US decision to Iran reimpose sanctions.

The U.S. embargo on Iran oil shipments has put Prime Minister Narendra Modi in a quandary. If he plays along, India could find itself on the right side of President Donald Trump on trade but lose cheap supplies and precious foreign exchange.

Oil imports from Iran totaled about $9 billion in the year ended March and substituting some of the contracts with more North American crude will help India lower the $24.5 billion trade surplus it runs with the world's largest economy. The South Asian nation is already buying more crude from the U.S., data from the Census Bureau and Energy Information Administration show.

While ending purchases from Iran will cost India savings on shipping costs and the longest credit period offered by any of its suppliers, there are gains to be had from paring the trade surplus with the U.S. -- at the heart of Trump's trade war with China. For one, it will soften the approach on thorny issues such as India being named in the U.S. Treasury's watchlist of potential currency manipulators who use exchange rates to boost exports.

"The upcoming sanctions on Iran provide a golden opportunity to commercialize more U.S. oil in the Indian market," said Abhishek Kumar, a senior energy analyst at Interfax Energy in London. "Escalating trade tensions between the U.S. and China will also be conducive to more U.S. oil coming to the Indian market."

India has been preparing for alternative supplies after the U.S. decision to reimpose sanctions on the Persian Gulf state.

What Trump's moves on Iran and China are leading to:

Iran: India may cut Iran crude purchases after U.S.-led embargo. Pompeo warns Europe of threats posed by support for Iran. Iran official urges Trump not to use U.S. strategic oil reserve. Oil rises as supply threats overshadow demand-killing trade war. China: Trade war bites as China to import less soy first time since '04 China's cooling economy spells trouble ahead for global growth. Trade war imperils growth as IMF sees 'complacent' markets.

Narrowing the trade surplus may also help India win a possible exemption on U.S. tariffs on some products, including steel and aluminum. India, for now, has announced retaliatory tariffs on a slew of U.S. imports but said the room for talks are open.

Largest Volume

Crude imports from the U.S. rose 800 percent month-on-month to 4.72 million barrels in May, the largest volume since at least 2015 for which data is available. India, the world's fastest growing oil user, could bridge the surplus by up to $4 billion through oil imports alone, government officials said in April.

But there are limitations to how much India can buy from the U.S. at the moment. The U.S. currently has only one export terminal that can accommodate 2-million-barrel supertankers preferred by faraway customers in Asia and expansions at other ports aren't expected to be completed before 2020.

Indian Oil Corp., the South Asian nation's biggest refiner, is working on possibilities of entering into term contracts for U.S. volumes, instead of the current practice of purchasing from the spot market, Chairman Sanjiv Singh said in an interview.

There's potential for India to increase oil purchases from the U.S., whose first shipment reached the South Asian nation in August 2017 after Washington lifted its four-decade-long curbs on crude oil exports.

"The U.S. is focused on boosting its hydrocarbon exports to India," said Interfax's Kumar. "A wide front-month futures price premium of Brent over WTI will further provide a competitive edge to oil sourced from the U.S."