India, Iran aim to resolve oil payments impasse

Central bank officials from  India and Iran were due to meet on Friday to try to keep their  oil trade running, with New Delhi aiming to balance its energy  needs with global diplomatic interests. 

Indian officials and traders were hopeful of a quick  resolution to a payments row that could disrupt about 13  percent of its oil imports and leave refiners scrambling for  expensive alternative sources of crude. 

The Reserve Bank of India (RBI) said last week that oil  trade payments to Iran could no longer be settled using a  long-standing clearinghouse system run by regional central  banks, and Tehran has refused to sell oil outside the old  set-up. This week the RBI extended the move to apply to all  current account transactions. 

"We are extremely hopeful that this impasse will be  resolved shortly as Indian companies every week get crude  supplies from Iran," B. Mukherjee, head of finance at  state-run Hindustan Petroleum Corp , told Reuters. 

Other importers of Iranian crude include state-run Indian  Oil Corp and Mangalore Refinery and Petrochemicals  Ltd and privately-run Essar Oil . 

The meeting was scheduled to take place at RBI  headquarters in India's financial centre, Mumbai. 

The White House, which wants governments to stop dealing  with Iran because of its nuclear programme, has praised the  move, which came less than two months after President Barack  Obama's trip to India, where he pledged to help boost New  Delhi's global role. 

UN sanctions on Iran do not cover oil sales. 

India and Iran could agree to settle deals in Iran's rial  or another currency such as the Japanese yen, Indian Oil  Secretary S. Sundareshan suggested on Thursday. 

South Korea pays for Iranian crude using the won. 

Payments could also be routed through a third-country  central or commercial bank. 

An economy growing at about 9 percent a year has made  India the world's fourth-largest importer of crude. Iran is  its second largest supplier after Saudi Arabia. 

Indian oil importers get 90 days credit for payment so  they are covered for old transactions, but future shipments  are in jeopardy if the matter is not resolved. 

"For getting vessels next week, we have to enter in a  transaction. How will we do that?" an oil industry executive  said. 

"NIOC (National Iranian Oil Co) cannot raise a bill  because we have no backing. Supplies will be disrupted. So a  solution has to be there and I hope today something will  happen." 

India buys about 400,000 barrels per day of Iranian crude,  sending roughly $12 billion a year to Tehran via the Asian  Clearing Union, a system created in the 1970s by central banks  in South Asia and Iran to clear trade payments between them. 

Critics say the scheme is opaque to the monitoring of  flows into Iranian organisations against which the United  States has sanctions, as settlements are made on a net basis  every two months. 

Suspending Iranian imports when global crude prices are at  near two-year highs and when Indian inflation is uncomfortably  high would be costly for India. 

India and Iran have long-standing ties but analysts say  irritants and a new strategic thinking are prompting New Delhi  to adopt a more nuanced and assertive policy. 

New Delhi's interests are increasingly tied with the  United States, and it is also mindful of Arab concerns over  Iran's nuclear ambitions. 

"When it comes to Iran, India can ignore pressure from the  U.S. and noises from Israel, but it cannot ignore concerns  from the Arab countries," said PR Kumaraswamy, head of West  Asian studies at New Delhi's Jawaharlal Nehru University. 

"In a very subtle way, India is sending a message that its  closeness with Iran will not affect relations with other  Middle Eastern countries."