Proposal will help New Delhi save on foreign exchange as it pays Tehran in rupee

As its current account deficit widens and the value of the rupee dwindles, India plans to increase crude oil imports from Iran so as to save $8.5 billion in foreign exchange.

Petroleum and Natural Gas Minister Veerappa Moily has sent the proposal to Prime Minister Manmohan Singh.

Yielding to sanctions imposed on Tehran by the U.S. and the European Union so as to force it to roll back its nuclear programme, India slashed crude imports from Iran by 26.5 per cent during 2012-13, buying just 13.1 million tonnes, against 18.1 million tonnes the previous year. In his note to Dr. Singh, Mr. Moily said that in the remainder of the year, the country should import 11 million tonnes so as to save $8.5 billion on foreign exchange. New Delhi, which spent $144.29 billion for oil imports last fiscal, pays Tehran in rupee, unlike other countries.

Officials in the Petroleum Ministry said about two million tonnes had so far been imported from Iran. Import of an additional 11 million tonnes would help to cut the foreign exchange outgo by $8.47 billion (given that crude rules at $105 a barrel).

Because of the sanctions, India pays Iran in rupee through a UCO Bank branch in Kolkata. Since July 2011, India had been paying Iran through the Ankara-based Halkbank in euro for 55 per cent of its oil purchases. The rest was remitted in rupee in the accounts of the National Iranian Oil Company in UCO Bank. However, payments in euro ceased on February 6. Iran was India’s second biggest supplier after Saudi Arabia in 2010-11. However, during 2012-13, it supplied only 13.1 million tonnes, lagging behind Saudi Arabia, Iraq, Venezuela, Kuwait and the United Arab Emirates.

In 2011-12, Iran stood third with 18.1 million tonnes, against 32.5 million tonnes from Saudi Arabia and 24.1 million tonnes from Iraq.

In 2009-10, it supplied 21.2 million tonnes. During 2012-13, Iranian supplies accounted for 7.2 per cent of India’s oil imports, down from 10.5 per cent during 2011-12.