Iran has threatened to stop crude oil supplies to India from August if a mechanism to pay for imports from the nation’s second largest oil supplier after Saudi Arabia is not found quickly.
National Iranian Oil Co (NIOC) on June 27 wrote letters to refiners like Mangalore Refinery and Petrochemicals Ltd and Essar Oil, who are the principal buyers of Iranian crude, demanding that a mechanism be put in place to pay for its oil supplies, industry official said on Friday.
Iran is supplying some 400,000 barrels per day of crude oil to India on credit since late December last year when the Reserve Bank of India scrapped a long-standing mechanism to pay for import from Persian Gulf nation using a clearing house system run by regional central banks.
“The situation is grave. We need to find an alternative to the scrapped payment mechanism,” an official said.
Outstanding payments have now topped $9 billion, sending finance ministry to scramble for an alternative mechanism.
The urgency stems from the fact that Iran is the second only to Saudi Arabia as an oil supplier to India, while India is Iran’s second-biggest crude buyer after China, accounting for about 20 per cent of its exports. Iran supplies 12 per cent of total oil needs of India.
As an alternative to Asian Clearing Union (ACU), India tried routing payments through countries like the UAE, Russia and Turkey. All of them were willing to do small payments, running into few million dollars, but said no to routing nearly $13 billion that India pays for Iranian crude annually.
Officials said the only option left with India was to pay in its own currency, rupee but finance ministry has not yet agreed to it.
Korea and China use their own currency to pay for Iranian imports. Iran buys cars and several other commodities including heavy equipment from the two nations from the payments it earns from oil sales, leaving almost nothing by way of actual currency transfer.
In case of India, its trade with Iran is heavily loaded in favour of Tehran. Its exports of items like tea accounts for just a couple of billion dollars while it imports up to $13 billion worth of crude oil every year.
The net result will be that Iran will have every month a billion dollar worth of rupee in hand, which finance ministry does not want it to be invested in stocks or buying stake.
MRPL, a unit of state explorer Oil and Natural Gas Corp, is the largest buyer of Iranian crude at 142,000 barrels per day. Essar imports 110,000 bpd, state-owned Hindustan Petroleum Corp Ltd 65,000 bpd and Indian Oil Corp 50,000 bpd.
Reliance Industries has since last year completely stopped using Iranian oil at its twin refineries on the west coast.
