Iran oil plan not exactly simple

M Veerappa Moily: Importing more oil from Iran will lead to a saving of $8.47 billion.

Written by Shubhajit Roy | Published: September 4, 2013 2:40:31 am

Petroleum Minister M Veerappa Moily has proposed that importing more oil from Iran will lead to a saving of $8.47 billion. This may sound to be an interesting idea to tide over the current economic situation,but it is not as simple as it sounds. And as usual,devil lies in the detail.

Because of the sanctions,since 2011 India has been making 45 per cent of the oil payments to Iran in rupees through a UCO Bank branch in Kolkata. The remaining 55 per cent was paid in euros through the Ankara-based Halkbank. Payments in euros through Turkey ceased from February 6 this year after the sanctions were tightened.

Iran now has apparently agreed to take payments for oil it sells to India entirely in rupees after the US and western sanctions blocked all other payment routes,although there has been no official word so far.

Now,the key question is whether Iran will be comfortable in ramping up the oil supply,when its payments are all being accumulated in an Indian bank.

Iranians have already accumulated $5-6 billion in the UCO Bank account. Will they be open to the idea of having their money piling up in a foreign bank,and not being in their custody?

Then comes the issue of transporting oil in ships from Iran. With much of the ships operated by Iran’s shipping company under sanctions,getting the oil will again be a logistical challenge. Much of the reduction in oil supply has happened because of the shipping problems,and insurance companies are not willing to cover the ships with Iranian oil. This will again pose a problem.

Similar logistical and insurance hurdles will stalk the increased supply of imports from Iran,when it comes to process them in the refineries.

Simply put,the factors which have led the Iranian imports to go down — the same factors will act against ramping up the imports. And,if,by some stroke of luck,all these issues are resolved,and India is able to import oil more than last year,the waiver from the US sanctions will be hard to get. And,Delhi will face the brunt of the sanctions.

While all indicators point towards Moily’s proposal to be a non-starter,South Block will be watching the Petroleum Ministry’s plan on how to tackle these formidable challenges. Only time will tell whether Moily’s idea is a gimmick or a game-changer.

Shubhajit is an Assistant Editor based in Delhi.

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