New Delhi: In the first clear indication of India's willingness to continue trade with Iran, state refiners have contracted import of nine million barrels of Iranian oil in November when the US sanctions will come in force.
This despite the US on Thursday reiterating its warning to all purchasers of Iranian oil to bring it down to zero by November 4 or face imminent sanctions.
The decision to continue oil imports from Iran comes on the same day that India signed a USD 5 billion worth arms deal with Russia, ignoring the US threat of sanctions. The US’s first response has been guarded, with the nation’s embassy in Delhi saying the sanctions aren’t meant to punish allies or partners.
According to sources, the government is also preparing to replace dollar payments with rupee in trade with Iran. The US sanctions would block payment routes.
"Iran has been off-and-on taking rupee payments for oil it sells. This rupee it uses for paying for imports of medicines and other commodities. A similar arrangement is in works," a source said. Details of the payment mechanism would emerge in the next few weeks, he said.
Top industry sources said Indian Oil Corp (IOC) and Mangalore Refinery and Petrochemicals Ltd (MRPL) have contracted 1.25 million tonnes of Iranian oil for import in November. Oil refiners could use UCO Bank or IDBI Bank to route oil payments to Iran, they said.
India had planned to import about 25 million tonnes of crude oil from Iran in the current fiscal, up from 22.6 million tonnes imported in 2017-18. But the actual volumes imported may be far less as several companies have totally stopped buying oil from Iran and others too are scaling it down in hope of winning a sanction waiver from the US.
US President Donald Trump in May withdrew from the 2015 nuclear accord with Iran, re-imposing economic sanctions against the Persian Gulf nation. Some sanctions took effect from August 6 while those affecting the oil and banking sectors will start from November 4.
Currently, India pays its third largest oil supplier in euros using European banking channels. These channels would get blocked from November.
During the first round of sanctions when EU joined the US in imposing financial restrictions, India initially used a Turkish bank to pay Iran for the oil it bought but beginning February 2013 paid nearly half of the oil import bill in rupees while keeping the remainder pending opening of payment routes. It began clearing the dues in 2015 when the restrictions were eased.
Besides, New Delhi sought to get around the restrictions by supplying goods including wheat, soybean meal and consumer products to Iran in exchange for oil.
Sources said this time around the entire 100 per cent of Iranian oil import bill can be paid in rupees.
Iran is India's third-largest oil supplier behind Iraq and Saudi Arabia. It was India's second biggest supplier of crude oil after Saudi Arabia till 2010-11 but Western sanctions over its suspected nuclear programme relegated it to the seventh spot in the subsequent years. In 2013-14 and 2014-15, India bought 11 million tonnes and 10.95 million tonnes respectively from it.
Sourcing from Iran increased to 12.7 million tonnes in 2015-16, giving it the sixth spot. In the following year, the Iranian supplies jumped to 27.2 million tonnes to catapult it to the third spot.
Iranian oil is a lucrative buy for refiners as the Persian Gulf nation provides 60 days of credit for purchases, terms not available from suppliers of substitute crudes - Saudi Arabia, Kuwait, Iraq, Nigeria, and the US.
Besides blocking of banking channels from November, the absence of payment mechanism may pose a challenge to the transportation of the oil as Iranian crude is bought on a CIF basis and shipped on Iranian tankers.
Under Cost, Insurance and Freight (CIF) mode of shipping, the seller assumes the responsibility of transportation and insurance. The liability and costs associated with successful transit are paid by the seller until the goods are received by the buyer.