Caught between the US and Iran, India is ‘cautiously optimistic’ about not attracting secondary sanctions from Washington for continuing to import oil from the Islamic nation beyond November 4.
“Our optimism comes from the talks we have had with US officials (on oil imports from Iran), who seemed sensitive to our needs and concerns,” an official told BusinessLine .
“But we are also cautious as it all boils down to the will of one powerful person in the US.”
While American sanctions on Iran have been in effect since August 6, those concerning the oil and banking sectors will kick in from November 4.
This will block banking channels, making payment for oil bought from Iran difficult. It will a;so stop reinsurance cover to refineries processing Iranian oil.
Apart from India, Iran exports crude oil to the EU, China, South Korea, Turkey and Japan. Indian refiners, however, have not signed any new contract with Iran. Their existing contracts run till March/April 2019.
PSU refineries have booked imports for November, and it is expected that they will keep their purchase agreements for December as well.
Supply and payment
“There are two issues — supply and payment,” said a senior executive of a domestic oil refinery. “As regards supply, the term contracts which some refiners already have with Iran are on till they expire. Where payment is concerned, even before the sanctions threat came in, we had the rupee payment mechanism in place and trade has been taking place through it.”
“Rupee payment is a way out,” said another source. “And what we are looking at is having more rupee trade. Some payment can be done as a trade-off (barter). For instance, Iran can buy medicines or infrastructure projects or petroleum products from India for the remaining amount.”
India usually honours only sanctions declared by the UN.
Mode of payment
At present, PSU oil refiners have booked imports of 1.25 million tonnes (mt) of crude oil from Iran for November.
“But the mode of payment was not discussed, as the existing rupee mechanism can be used when there is no alternative,” said the oil company executive.
“India cannot bring down its oil imports from Iran to zero as some contracts are already in place and the country remains a cheap and reliable supplier of crude for us,” said an official.
“We have always been open to alternative suppliers, but they should be equally good, if not better, as our national interest is our chief concern. The US understands our position and we hope no drastic action will be taken.”
Last fiscal, India bought about 22 million tonnes of oil from Iran, or almost 10 per cent of its total imports.