Payments for crude to be made in euro through German bank
In a major breakthrough that put an end to more than a month of uncertainty, India and Iran on Thursday arrived at a settlement and agreed to use euro to pay for Iranian crude oil through a German bank.
Even the country's leading State Bank of India (SBI) had refused to facilitate payments for Iranian oil after the RBI on December 23 clamped down on the main conduit used by Indian companies to pay for imports, which make up for over 12 per cent of the country's oil needs. However, Iran continued to supply oil on credit despite the outstanding amount crossing a staggering $3 billion.
At a high-level meeting attended by National Security Adviser Shiv Shankar Menon, Foreign Secretary Nirupama Rao, Economic Affairs Secretary R. Gopalan and Petroleum Secretary S. Sundareshan, it was decided that euro payments will be made through Hamburg-based Europäisch-Iranische Handelsbank AG (EIH Bank), a Petroleum Ministry official stated.
“The SBI has been directed to start clearing the backlog of payments beginning this [Thursday] evening itself,” the official said. Even private companies such as Essar Oil will transfer money to the SBI which in turn will use its Frankfurt branch to route payments to EIH. The SBI will first clear the over $2 billion payment backlog for the four-month period beginning September 2010.
An additional $1.3-billion worth of oil was bought after December 23, when the RBI disallowed payments for Iranian crude through the Asian Clearing Union (ACU), a long-standing clearing house system run by the central banks of nine countries — including India and Iran.
National Iranian Oil Co (NIOC) has an account in EIH and the Central Bank of Germany, Deutsche Bundesbank (DBB) had cleared it for receiving euro payments for Iranian crude.
No ban on import
DBB had agreed to receive euro payments for the Iranian oil, provided the importing entity or its bank issued a certificate that the money would not be used for trade in any commodity that is under the United Nations or European sanctions, the official said. The import of crude oil from Iran had not been banned by either the UN or the European Union.
India imported 21.3 million tonnes of crude oil in 2009-10 and imports in 2010-11 were expected to be around 18 million tonnes, as Reliance Industries Limited (RIL) had stopped using Iranian crude. India imports 12 million barrels every month from Iran, which is the nation's second-largest supplier after Saudi Arabia.
The RBI had stated that trade transactions with Iran must be settled outside the ACU, that allowed companies to skirt the U.S. and European restrictions on doing business with the Middle East country.
Regulations endorsed by the EU in October require deals involving Iran and the euro to be accompanied by a certificate outlining payment details for each and every transaction.
Under the ACU mechanism, payments for all trade deals between member countries were settled every two months, with individual transactions not being accounted for separately.
United Nations' sanctions do not forbid buying Iranian oil and recently the European Central Bank (ECB) asked the RBI to provide certificates that the euro was being used to import products not on the U.S. sanctions list.