India Tries to Pay Iran in Rupees in Barter Deal for Oil as US Law Threatens Sanctions against India

Halkbank Turkey Route Dries up, EIH Hamburg Says “No”

Fearing that fresh US sanctions may block a six-month-old conduit used for paying for Iranian crude, India wants to pay its second largest oil supplier in rupees.

The issue is likely to figure prominently when a multi- disciplinary team visits Tehran on January 16 to discuss uninterrupted supply.

India currently pays Iran about $1 billion every month through Turkey for the 370,000 barrels per day of crude oil it buys from the world’s fourth-largest oil producer.

“There are chances that Turkey may come under pressure after a fresh round of US sanctions imposed on Iran,” an official said.

India buys 18.499mn tonnes of crude worth $12bn from Iran every year. MRPL and Essar Oil are the worse affected. RIL, IOC, BPCL and HPCL are relatively safe. However, the reliance on the heavy crude of Iran makes the refineries vulnerable. The price rise and dollar appreciation will send the Indian economy spinning.

Under the proposal, National Iranian Oil Co (NIOC) will open a rupee account with Indian banks and can use the money to purchase non-strategic items like railway imports and buying commodities. It cannot, however, use the money to invest in India or buy shares or companies.

A list of what Iran can do with the money and what it cannot is being prepared.

The US will not take kindly to these actions as it has enacted a law for sanctions against countries who deal with Iran. The Near East giant is No. 1 on US hit list for Uranium enrichment.

RBI drops ACU: Reserve Bank of India, which had in December, 2010, discontinued a long-standing mechanism of payment through central banks, had previously opposed payments for the Iranian oil in rupee.

Routing payments through Russia was discussed during the visit of Prime Minister Manmohan Singh to Moscow last month. However, Russia is not keen due to the “complexities” involved.

National Security Adviser Shivshankar Menon on Thursday chaired a meeting of officials from the ministries of finance, petroleum and external affairs and the Reserve Bank after indications from Turkey’s state-run Halkbank that it would have to stop settling payments on behalf of Indian companies.