Following Tehran’s decision of not accepting rupee payment beyond 45 per cent margin for purchase of crude oil, India has opened negotiations with the new government in Iran to explore and work out other mechanisms, including payment in other currencies that could include rouble or yen.
Petroleum and Natural Gas Secretary Vivek Rae said that following the U.S. and EU sanctions against Iran, payment routes were blocked for India. India managed to get Tehran to accept 100 per cent rupee payment mechanism but the change in government changed this equation and Iran had raised a few invoices for oil it sold to India in rupees but stopped doing so soon after. Now, Iran is seeking payments in rouble, yen or yuan which is what is being worked out.
A team from India, consisting of officials from the Finance Ministry, Ministry of External Affairs, Petroleum Ministry and Reserve Bank of India (RBI), is likely to visit Tehran soon to engage with their counterparts and resolve the impasse.
Mr. Rae said India was targeting 13 million tonnes of oil import from Iran in 2013-14 fiscal. It had already imported around 2 MT and wanted to import another 11 MT in the rest of the fiscal. Petroleum Minister Veerappa Moily had proposed to Prime Minister Manmohan Singh that India could save $8.47 billion in forex by importing 11 MT of oil in the rest of fiscal from Iran.
Mr. Rae said Mangalore Refinery and Petrochemicals Ltd and Essar Oil Ltd plan to import 4 million tonnes each from Iran, as against about 5 million tonnes each they imported in 2012-13. State-run Indian Oil Corporation, which imported 1.566 million tonne oil from Iran in 2012-13, has entered into a term contract for importing 1.2 million tonne crude oil from Iran this fiscal. Since July 2011, India had paid in euros to clear 55 per cent of its purchases of Iranian oil through Ankara-based Halkbank. The remaining due amount was remitted in rupee form in accounts of Iranian National Oil Company in Kolkata-based UCO Bank. Payments in euro through Turkey ceased from February 6 this year but the rupee payments for 45 per cent of the purchases continued through the bank. Iran later agreed to take all of the payments in rupees.
There is also pressure to put in place a mechanism for utilisation of the accumulated rupee balances in the Iranian accounts with the same bank, which are of the order of Rs. 20,000 crore. This could be in the form of increased exports to Iran, given that the bilateral trade between the two nations is overwhelmingly weighted in favour of the Gulf country, or having the Iranian government invest in infrastructure projects in India.