Earlier this week,the Government assured visiting Iranian Foreign Minister Ali Akbar Salehi that the approaching US and EU sanctions against his country will not affect legitimate trade interests between New Delhi and Tehran. But it is learnt that the Finance Ministry has sought the opinion of Attorney General Goolam Vahanvati on the legal implications of the sanctions and channels for routing future oil payments to Tehran.
The Finance Ministry has also prepared a lengthy note on the subject to be taken up at a meeting of the Cabinet Committee on Security. It has discussed alternative routes of payment with the Ministry of External Affairs.
US sanctions on Irans central bank will come into effect on June 28 while the EU oil embargo is scheduled to commence on July 1.
Provisional figures for crude oil imports from Iran for 2011-12 are estimated to be 18 million metric tonnes. A Finance Ministry paper on the impact of sanctions on oil payments points out that the channel of payment through Halk Bank,Turkey,under which all accrued dues outside the Asian Clearing Union (ACU) have been made to Iran recently,may now be in jeopardy.
The Finance Ministry note warns that new sanctions are likely to make it harder for India to continue using the Halk Bank channel for making payments for oil imports from Iran. The Halk Bank channel may become difficult to use if due to US/EU pressure,Turkey decides not to let India use this channel or the correspondent banks of Halk Bank situated in Europe decide not to transmit the money to Halk Bank on the pretext that these monies ultimately go to the Halk Bank account of Irans central bank.
There are other strong indicators which the Ministry has listed for the Government:
The Finance Ministry has received a communication from the US Embassy informing them that sanctions may be applied to any foreign financial institution that has knowingly conducted or facilitated any significant financial transaction with the central bank of Iran or other US-designated Iranian financial institutions for purchase of petroleum products from Iran. The US mission has also mentioned that alternative suppliers exist for India to significantly reduce its oil imports from Iran (which have reduced 31% between 2008-09 and 2010-11).
The RBI has informed the Finance Ministry that in view of the US Presidential orders,UCO Bank (where rupee-accounts for some Iranian banks were opened for routing payments) is now facing problems in its transactions with overseas branches of other banks,for instance,in New York and Singapore.
The RBI has also received a communication from one of their custodians (Clearstream,Luxembourg) asking whether the Indian central bank has an ongoing business with Iran,and that Clearstream reserves the right to discontinue services in such case.
The Finance Ministry has cautioned that while banks like the UCO Bank are not likely to be affected before June 28,some overzealous counterparts of these banks,including nationalised banks in India,have started to either avoid dealing with them or ask for additional certification for unrelated transactions.