India set to pay for Iranian oil using rupees from November

Irving Hamilton
September 20, 2018

As the U.S. sanctions on import of Iranian crude oil loom large, India is engaged with the European Union for an alternative channel for making payments to Tehran for buying petroleum products, sources said Wednesday.

The United States has demanded that nations cut all their Iranian oil imports when sanctions on the country's petroleum sector over Tehran's nuclear program are re-imposed on November 4. New Delhi has said that technical configuration of many refiners makes it dependent on Iran. During the previous sanctions regime, India adopted a barter-like scheme to buy oil from Iran while the Middle Eastern country used rupees to import goods from India.

Iran is an important supplier of oil to Japan, accounting for about 5 percent of its crude imports, and Japanese refiners, together with the government, will try to maintain its good relationship with the Middle Eastern country, said Tsukioka, adding that the USA sanctions will not cause a major impact. Indian companies plan to lift Iranian oil in September and October for which they will need to pay after November 4.

When the Trump administration chose to pull out of the Iran Nuclear deal earlier this year and re-impose sanctions on Iran, the Indian government likely panicked.

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US President Donald Trump had in May withdrawn from the 2015 nuclear accord with Iran, re-imposing economic sanctions against the Persian Gulf nation.

However, cutting imports to zero from Iran is unlikely because India simply can not switch to more expensive sources of crude oil overnight without adverse short-term effects on its already-widening current account deficit and dramatic adjustments to its refineries, which are calibrated to process Iranian oil.

UCO Bank and IDBI Bank have been identified to route the payment as the two have no exposure to the United States financial system. UCO Bank has handled similar transactions in the past, hence it will be the preferred bank. These channels would get blocked from November.

"Previously we settled 45 per cent of our trade in rupees this time it could be 100 per cent". During 2011-2015, India also routed a portion of the payment to Iranian oil companies through Turkey's Halk Bank. India is the second-largest buyer of Iranian crude oil, which is cheaper than oil sourced from other countries. In 2013-14 and 2014-15, India bought 11 MT and 10.95 MT, respectively from it. In the following year, the Iranian supplies jumped to 27.2 MT to catapult it to the third spot.

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