U.S. and India clash over Iranian oil and rice for Iraq

World trade is a web of buyers, sellers, and competitors. However, the threads have been getting tangled lately, as the U.S. and India have found themselves in conflict over Iranian crude oil (USO, quote) and Indian rice. 

According to a February 24 report on Bloomberg, the U.S. is offering to help India get alternatives to Iranian oil, and may help broker deals with Iraq and Saudi Arabia. The assistance is part of American and European efforts to strengthen sanctions on Iran, which is suspected of pursuing a nuclear weapons development program.

It’s unclear whether the Indians are welcoming this assistance. Iran is openly offering to sell more crude to India, and the Indians aren’t shutting the door on a deal. Analyst Praveen Kumar of Facts Global Energy thinks the U.S. offer might even have “turned the situation a little in favor of India, which can potentially use it to get a better deal from Iran.”

Oil isn’t the only commodity which has put the U.S. and India at cross-purposes. The Times of India reports that U.S. Congress members from rice-growing states are “on the warpath” because Iraq is now buying rice from India and not the United States.

According to a letter sent to Iraq’s trade minister, rice sales to Iraq have dropped 77% between 2010 and 2011, even though “not long ago, Iraq represented the largest market for US rice.” 

The Iraqi grain board has said it decided to buy basmati rice from India. According to the board, not only is the rice cheaper, but it is a closer match to Iraqi tastes than American long-grain rice.

Congress seems to think the Iraqis are being ungrateful. “We liberated their country for one thing,” said representative Ted Poe (R-TX). “We would think they would consider the US in trade since we spent billions of dollars not only to liberate their country, but to rebuild their infrastructure.” 

So, Congressional rage has had little effect. As for the Indians, they have an especially good reason to keep selling rice to the Iraqis. They need to make up losses from the Iranians, who — due to lack of oil revenues — recently defaulted on rice payments to India

Investors looking to invest in rice will have to take a diversified approach. There is no rice-specific exchange traded fund, but the Elements International Commodity Index — Agriculture Total Return ETF (RJA, quote) holds corn, wheat, cotton, soybeans, coffee, live cattle, sugar, cocoa, lean hogs, rubber, and rice.

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