Petrol Stop

India wants to pay for Iranian crude in rupees

Sunday, 08 January 2012

08 Jan 2012;deccanherald.com:New Delhi: Fearing that fresh US sanctions may block a six-month-old conduit used for paying for Iranian crude, India wants to pay its second largest oil supplier in rupees. The issue is likely to figure prominently when a multi- disciplinary team visits Tehran on January 16 to discuss uninterrupted supply, a top government official said here. India currently pays Iran about USD 1 billion every month through Turkey for the 370,000 barrels per day of crude oil it buys from the world's fourth-largest oil producer. "There are chances that Turkey may come under pressure after a fresh round of US sanctions imposed on Iran," an official said. Under the proposal, National Iranian Oil Co (NIOC) will open a rupee account with Indian banks and can use the money to purchase non-strategic items like railway imports and buying commodities. It cannot, however, use the money to invest in India or buy shares or companies. A list of what Iran can do with the money and what it cannot is being prepared. The official said the Reserve Bank of India, which had in December, 2010, discontinued a long-standing mechanism of payment through central banks, had previously opposed payments for the Iranian oil in rupee. India had in February last year started making euro payments through an Iranian bank based in Germany. But under US pressure, Germany soon stopped accepting money from India for onward transfer to Hamburg-based EIH Bank, sending India to the doorstep of Turkey. Routing payments through Russia was discussed during the visit of Prime Minister Manmohan Singh to Moscow last month. However, Russia is not keen due to the "complexities" involved. US President Barack Obama signed a Bill into law late last month empowering US authorities to impose penalties on foreign banks dealing with the Central Bank of Iran to settle oil import payments. National Security Adviser Shivshankar Menon on Thursday chaired a meeting of officials from the ministries of finance, petroleum and external affairs and the Reserve Bank after indications from Turkey's state-run Halkbank that it would have to stop settling payments on behalf of Indian companies. The official said a preparatory meeting would be held in the Oil Ministry this week. New Delhi, however, sees no supply disruptions unless the Strait of Hormuz is closed. Iran has threatened to block oil deliveries through the Strait of Hormuz if sanctions are imposed on the country's oil industry over its nuclear activities. The US Energy Information Administration estimates that the strait carries about 20 per cent of all oil traded worldwide. India gets about three-quarters of its crude needs through imports and Iran is its second-largest supplier after Saudi Arabia. The European Union has also agreed in-principle to ban imports of Iranian crude oil to the EU. The official said annual crude supplies of 94.82 million tonnes from six Middle East nations could be hampered if the Strait of Hormuz is closed. Six Gulf nations, including Saudi Arabia and Iran, supply 58 per cent of India's total annual consumption of 163.59 million tons of crude. The closure may also hinder the 7.5 million tonnes of liquefied natural gas that Qatar ships through tankers each year to India, he said. However, New Delhi believes Iran may not take actually block the Strait of Hormuz and it using it as a point of posturing against the US. India, however, sees oil prices rising if the tension between Iran and the West continues. "If that happens, it will be difficult for us to manage," he said, pointing to the Rs 135,000 crore revenue loss that state-owned oil firms estimate at current oil prices on selling diesel, domestic LPG and kerosene below the imported cost this year. "We are finding it difficult to meet even these under-recoveries (revenue loss)," the official said. The new sanctions against Iran come with a wide range of exemptions and a grace period of six months. The EU is also debating the number of months it would wait to implement the sanctions and if long-term supply deals should be allowed to be completed.