Indian and Iranian representatives will meet in Mumbai on Friday to put in place a new mechanism for Indian oil companies to make payments for the Iranian crude oil they buy.
On December 23, the Reserve Bank of India stopped facilitating payments for crude oil imported from Iran. “We are working on an alternative settlement mechanism. It is being discussed at length with the Ministry of Finance, and a solution will be found in the next few days,” Petroleum Secretary S. Sundareshan told journalists here on Thursday.
The RBI said companies would be allowed to settle current account and trade transactions with Iran outside the Asian Clearing Union (ACU), a regional payment arrangement. ACU participants settle transactions in either U.S. dollar or Euro.
Iran has refused to sell oil under the new rules.
Mr. Sundareshan said officials of the RBI and the Iranian Central Bank would discuss a mechanism, under which payments could be made in any currency.
The ACU, based in Tehran, settles trade transactions with Bangladesh, Bhutan, India, Iran, Nepal, Pakistan, the Maldives, Myanmar and Sri Lanka. “The ACU, which was for all commodity and business transactions, is under some stress, and the RBI wants to make changes in this mechanism,” Mr. Sundareshan said.
Iran is India's second largest crude oil supplier, after Saudi Arabia, meeting more than 12 per cent of its needs. In the absence of a mutually acceptable payment mechanism, India may not be in a position to import 10 million barrels of crude oil from Iran next month.
India imported 21.3 million tonnes of crude oil from Iran in 2009-10; imports are expected to be around 18 million tonnes this year. Reliance Industries Limited (RIL) has stopped using crude oil from Iran. Mangalore Refinery and Petrochemicals Limited (MRPL) is the biggest importer of Iranian crude, with a contract for 7.1 million tonnes.
Essar Oil imports roughly 5 million tonnes a year, Indian Oil Corporation 3.5 million tonnes and Hindustan Petroleum Corporation Limited about 3 million tonnes.
Until 2008, payments under the ACU were made in dollars, but after the U.S. imposed sanctions on Iran, Euro was adopted. Recently, the European Central Bank (ECB) asked the RBI to certify that the Euro being used to import products were not on the U.S. sanctions list.
In the absence of the ACU, Iran and its crude supplier, National Iranian Oil Co (NIOC), are jittery over sales without the sovereign guarantee of the Central Bank. Furthermore, oil firms will have to find an alternative European bank that can accept payments on behalf of the NIOC. Friday's meeting is expected to focus on finalising a panel of banks through which payments could be made for Iranian imports. Officials reckon that finding an alternative bank for oil payments will be a difficult task, as EIH Bank of Germany, which facilitated transactions for the ACU members, has been brought under the U.S. sanctions.
