Oil payments to be made through a Hamburg-based bank

India and Iran on Tuesday agreed on a “formula” for making payments for oil through a Hamburg-based German bank.

Officials in the Petroleum and Natural Gas Ministry said Iran's national oil company National Iranian Oil Company (NIOC) has a Euro account in Europäisch-Iranische Handelsbank AG (EIH Bank) in Hamburg, which will process the payments made for Iranian crude by Indian companies.

Oil companies such as Mangalore Refinery and Petrochemicals Limited, Indian Oil and Essar Oil will make payments to the State Bank of India, whose Frankfurt branch will transfer the money to NIOC's EIH Bank account.

Petroleum Secretary S. Sundareshan said there had been no disruption in oil supplies since the Reserve Bank of India (RBI) issued the new payment guidelines. “A cargo for delivery on January 8 and 9 is currently being loaded in Iran. We have no problems sourcing crude from Iran.”

Mr. Sundaresan said a delegation of Indian banks and oil companies, led by a Finance Ministry Additional Secretary, will undertake a three-day visit to Tehran from January 14 to find a permanent solution to the issue.

The RBI on December 23 had stated that oil and other import payments to Iran will have to be settled outside the existing Asian Clearing Union (ACU) mechanism, which involves the Central banks of India, Bangladesh, Maldives, Myanmar, Iran, Pakistan, Bhutan, Nepal and Sri Lanka.

Under the ACU mechanism, imports by the nine nations are settled every two months with every member paying for imports after netting out its exports among the union. Till 2008, payments under the ACU mechanism was done in U.S. dollars, but after the United States imposed sanctions on Iran over its suspected nuclear programme, the currency was shifted to Euro.

After the RBI directive, oil firms began searching for a European bank which could accept payments on behalf of the NIOC. Iran is understood to have expressed its willingness to accept payments in rupee, but the RBI expressed reservations on this account.

Various payment options were being explored by both sides.

Officials said payment for Iranian crude in Japanese yen is not possible as U.S. sanctions prohibited any freight payment for Iranian crude in Japanese currency. As for UAE Dirham, they said it cannot be a permanent solution as officials there strictly monitor the payments routed to Iran and may block them under U.S. pressure.