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India to take Moscow route to channel oil payments to Tehran

India oil refiners’ payments to Iran, which continue to be stymied by sanctions on Tehran despite interim...

India oil refiners’ payments to Iran, which continue to be stymied by sanctions on Tehran despite interim leniency shown by the US and five other world powers to the Persian Gulf country, may finally get easier with Moscow agreeing to play intermediary. Russia, which recently signed an agreement with Iran for oil purchases from the West Asian country, would institute an oil swap mechanism with India that will mean that practically New Delhi will have to pay Russia for Iranian oil with Moscow assuming the risk of routing the funds to Tehran.

The new arrangement, sources said, may be part of a package deal encompassing defence and energy sectors that India and Russia are slated to negotiate in detail during President Vladimir Putin’s visit to India in December. India’s immediate payment to Iran of $900 million in two tranches beginning next week will be made through the existing mechanism where Indian oil companies deposit funds in rupees in an Indian bank.

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Iran then appropriates the money based on a series of back-to-back transactions in different currencies that are initially channelled through the Reserve Bank of India (RBI).

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Indian oil refiners’ combined dues to Iran currently stand at close to $6 billion. Frozen oil revenues from India and elsewhere have been a problem for Iran for the last few years.

The difficulty in making payments has also resulted in India cutting down its oil purchases from Iran drastically in recent years: Of India’s total oil imports of 189 million tonnes (mt) last year, just 11 mt or 5.8% came from Iran. India had imported over 21 mt of crude from Iran in 2009-10.

According to sources privy to the discussions between the India and Russia, the idea is to streamline payments for oil shipments from Iran. They added that energy security, besides defence trade, will be topping the agenda of Putin’s visit to India. “Both sides are working on a ‘vision document’ that will be released during the summit where energy security will be a highlight. It will be dealing with three major areas: gas pipeline; oil pipeline and most importantly getting the Iranian crude oil to India through Russia,” said an official.

As per the current mechanism for payment that has seen many alterations due to the sensitivity of the matter, India deposits the funds in rupees in an Indian bank, which is later utilised by Iran to pay for its imports from India.

PSU refiner Mangalore Refinery and Petrochemical

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(MRPL) consumes most of the Iranian crude oil in India, followed by the Ruias-promoted Essar Oil. The country’s biggest refiner Indian Oil Corporation uses little volume of Iranian crude oil.

After the sanctions on the Islamic country by Western powers for its alleged nuclear activities in 2012, India has reduced its imports from Iran and started buying more from other suppliers such as Colombia, Mexico and Venezuela. In FY14, India bought 11 mt of crude oil from Iran and volumes are likely to remain the same in the current financial year.

In 2009-10, crude oil imports from Iran were to the tune of 21.20 mt, which reduced to 18.50 mt in 2010-11; 18.11 mt in 2011-12; and 13.14 mt in 2012-13.

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India’s proposed payment of $900 million to Iran will be on top of $ 1.65 billion it had paid in June-July this year. Iran and the US, China, France, Germany, Britain and Russia agreed in July to extend a six-month interim accord until November 24 as they could not meet a July 20 deadline for concluding a long-term deal to end their nuclear dispute.

Huma Siddiqui , Siddhartha P Saikia |The Financial Express

First published on: 22-10-2014 at 10:45:43 am
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