will settle oil contracts with Iran in rupee using a bank in the Gulf nation
post November 4 when the US sanctions would freeze all payment channels using
privy to the development told FC Iranian Bank Pasargad could become the channel
for rupee/rial dealings in the oil trade between the two countries later this
month when the real picture emerges about the scale of disruption in oil
supplies from the Gulf country.
Reserve Bank of India (RBI) has given its nod to Pasargad to set up a branch in
Mumbai. Indian oil companies would use this branch to deposit their payment for
oil imported from Iran in rupee.
an earlier rupee payment window opened with UCO Bank or IDBI Bank may be
utilised again for making payments for Iranian oil post sanctions.
“The rupee/rial trade with Iran is again being looked seriously as the spectre
of wider sanctions on the Gulf nation looms. This would benefit both the countries
as Iran can get uninterrupted payment for its oil supplies while India may not
face supply disruptions,” said a government official privy to the development.
oil companies, including Mangalore Refineries and Indian Oil Corporation, have
already concluded contracts with Iran for supply of oil well into November.
Payment for all supplies post November 4, could be settled in rupee, said the
new payment mechanism would be similar to a barter-like scheme adopted by India
when the previous West-led sanctions disrupted the country’s trade with Iran.
This system allowed India to make a portion of oil payments to Tehran in rupees
through state-run UCO Bank that did not have a US exposure that could lead it
to fall foul of any new sanctions.
rupee settlement mechanism is still in practice in the trade between the two
countries, though the quantum came down substantially since early 2016 when
West-led sanctions were lifted. Thereafter, Iran also readily started receiving
payments in convertible euros. “It is early to suggest what will be good for
India as current sanctions is concentrated only to US and the European Union is
still to come on board on it. If the sanctions are only US driven, euro trade
could continue without hindrance,” said an oil sector expert not willing to be
experts now fear that the US might stop Iranian banks’ access to the global
transaction network SWIFT thereby curbing all transactions in foreign
currencies. This would leave no alternative for India but to revert to the
rupee payment mechanism.
on Iran could result in some supply disruptions. This could just be the
beginning of further bad news for India. Iran is pumping nearly 4 million
barrels a day of oil since the historic 2015 deal with six world powers that
lifted crippling sanctions on the country.
major disruption in Iran could send crude prices sharply higher just as the oil
market is emerging from a prolonged period of oversupply.
was India's second biggest supplier of crude oil after Saudi Arabia till
2010-11 but western sanctions over its suspected nuclear programme relegated it
to the 7th spot in the subsequent years. In FY17, Iran again became third
largest oil supplier to India after Saudi Arabia and Iraq with its supplies
jumping to 27.2 mt. This year (FY19) so far India has imported close to 10 mt
of oil from Iran.
companies are confident that their refineries would not suffer even if Iranian
oil imports were to completely stop. But New Delhi is keen to continue buying
oil from its traditional ally. This would mean that India would possibly use
escrow accounts for payment against crude oil imports, in rupee, and may cut
down its import a bit but will certainly not stop its oil import from Iran
oil is a lucrative buy for refiners as the Persian Gulf nation provides 60 days
of credit for purchases and also insurance cover, terms not available from
suppliers of substitute crudes — Saudi Arabia, Kuwait, Iraq, Nigeria, and the