India’s crude oil import from Iran is stuck after State Bank of India (SBI) refused to facilitate payments for the imports due to the Reserve Bank’s move to abolish a regional payment mechanism.
Sources said SBI is wary that it might be hit by the U.S. sanctions for facilitating payments for Iranian imports.
“One cargo of Hindustan Petroleum Corporation Ltd (HPCL) and one cargo of Mangalore Refinery and Petrochemicals Ltd (MRPL) are stuck in the absence of a letter of credit from SBI,” a source close to the development said.
After a meeting in the Finance Ministry in this regard, a SBI official said the country’s largest lender is not opening Letters of Credit for Iran crude oil payment due to uncertainty over payment mechanism.
After Reserve Bank of India abolished a regional payment mechanism for Iranian crude imports, SBI too has refused to issue fresh letter of credits, which is a guarantee to supplier for the payment upon delivery.
The SBI official said the meeting could not produce any resolution to Iran crude oil payment row and more meetings are required to settle the impasse in the future.
MRPL got its last cargo from Iran on January 2 for which the letter of credit was requisitioned before the December 23 RBI move.
A cargo for MRPL is to be loaded in Iran today but the delivery is uncertain as the company has not been able to provide letter of credit to the National Iranian Oil Company (NIOC).
The RBI last month stated that trade transactions with Iran must be settled outside the Asian Clearing Union (ACU), a regional payment mechanism that allowed companies to skirt U.S. and European restrictions on doing business with the Middle East country.
Refiners in India used the ACU, which settles payments in dollars and euros, to pay for oil purchases from Iran.
Under the ACU mechanism, payments for all trade deals between member countries are settled every two months, with individual transactions not accounted for separately.
ACU, based in the Iranian capital of Tehran, settles trade transactions between Bangladesh, Bhutan, India, Iran, Nepal, Pakistan, Maldives, Myanmar and Sri Lanka.
MRPL is the biggest importer of Iranian crude oil in the country, sourcing about 4 million barrels every month, which amounts to 7.1 million tonnes every year and Hindustan Petroleum Corp (HPCL) about 3 million tonnes.