India may use an Iranian bank to channel payment for oilNSE 1.10 % import from the Islamic republic after the US sanctions against buyers of Iranian crude take effect in November even as India hopes to receive US waiver of sanctions.
Indian and US officials recently met in New Delhi and shared their concerns and constraints with respect to the implementation of the Iran sanctions and its consequences.
The Indian side highlighted technical constraints of the country’s refineries, their dependence on Iranian supply and the inability to sharply cut imports from the Islamic republic quickly, according to people familiar with the matter.
Indian officials didn’t come out of the meeting with much clarity on waiver and possible accompanying conditions, but are optimistic that the Indian import of Iranian oil may not have to go down to zero.
Officials of the two countries will reengage soon to take the negotiations further. “The US wants to resolve this quickly. We want to resolve this quickly. So the engagement should happen soon,” said an official.
If India obtains a waiver and imports from Iran after the sanctions become effective, it would likely use a rupee payment mechanism to pay for oil.
Private Iranian lender Bank Pasargad, which has just received the finance ministry’s approval to open a branch in Mumbai, could be used to route the payment, an official said. A couple of Indian lenders, including UCO Bank, are also being roped in for this.
During the previous sanctions against Iran, Indian oil firms first routed part payment in euros through Turkey’s Halkbank and deposited the balance in rupee in UCO Bank. The Halkbank route was shut in less than a year.
Iran used part of its rupee earnings to purchase essential sanctions-exempt items like food and drugs from India. Indian oil firms used to earn interest on the rupee deposit in UCO Bank.
But after the Iranian bank opens its branch in Mumbai, it would be possible that the Iranian oil company receives payments in its own account in that branch and is able to earn interest on that money.
Iranian firms will not be able to repatriate money though. India today buys $9-billion worth of oil from Iran and exports food, drugs and other goods worth $3 billion.
Import from Iran has been rising sharply ahead of the sanctions with the Islamic republic becoming the second-biggest supplier to India in the April-June quarter.