NEW DELHI, (Reuters) – Iran has offered a stop-gap plan for oil supplies to India for January, an Indian government source said on Tuesday, but a lasting solution to the row over how to pay for supplies may take weeks.
India’s central bank said last week payments to Iran could no longer be done through a longstanding clearinghouse system run by central banks, prompting fears India’s $12 billion annual oil imports from Iran could be threatened.
Iran is India’s second biggest crude oil supplier after Saudi Arabia, accounting for about 13 percent of its total crude oil imports.
The Indian move came within weeks of U.S. President Barack Obama visiting New Delhi. Washington praised the Indian change, saying it would reduce what it sees is a misuse of funds by Iran to support its nuclear activity, which the West suspects has military aims.
Iranian central bank officials rushed to Mumbai but talks have failed to bring an agreement on a new payment mechanism that also boosts the transparency of their deals, as sought by the United States.
Iran has suggested Indian firms open an account in the Iran-owned Frankfurt-based EIH bank.
But the companies have asked India’s state-run State Bank of India to open an account in EIH to transfer money into the central bank of Iran, which in turn will pay it into a National Iranian Oil Company (NIOC) account, the Indian source said.
“We have got the letter this morning from NIOC,” the source said.
“It says pending a full resolution of the issue at hand, which is at central banks’ level, for the month of January I am offering you a dispensation, which is to open a euro account in EIH Bank in which the central bank of Iran has an account.”
The source said Indian officials will visit Iran in mid-January to work out a long-term solution at the central bank level for oil payments.
If the impasse continues it could hit Indian imports of 400,000 barrels per day of Iranian crude oil, forcing Asia’s third-largest economy to look for more expensive alternatives that would swell its already high current account deficit.
India also fears that rival China would step in and buy Iranian crude that is now shipped to India.
In a bid to hedge itself against supply disruptions from Iran, Mangalore Refinery and Petrochemicals, the biggest Indian buyer of Iranian crude, on Tuesday floated a rare tender to import high sulphur crude oil for lifting during March 11-20.
“The fact that MRPL has suddenly come out with a tender seeking high sulphur crude indicates that this is an Iran impact. MRPL may not want to take chance against other state-run firms that can take a wait-and-watch approach,” said an Asian oil trader.
An MRPL official said January supplies were expected to be normal. “Our cargo from Iran sailed off on Jan. 2, it takes about seven days to reach India so on the ninth it will reach India.”
An official at Indian state-run Hindustan Petroleum also said his firm’s cargo had been loaded at an Iranian port.
It was not immediately clear whether the payments for the early January parcels were cleared under the old mechanism or the stop-gap arrangement now being offered by Iran.
An Indian source said last week that deals between India and Iran until Dec. 29 had been settled through the old system.
Indian Oil Corp’s finance head S. V. Narasimhan said his firm did not anticipate any supply disruption.
Although United Nations sanctions do not forbid buying Iranian oil, the United States has pressed hard for governments and companies to stop dealing with Iran.
India will need to strike a fine balance between its energy needs and global diplomatic interests to solve the dispute.
Iran’s Foreign Ministry spokesman Ramin Mehmanparast said in Tehran: “The issue which was raised over the payment of oil trade between Iran and India is more about technical issues.
“Our central bank officials had very good discussions with Indian officials … We hope the issue resolves soon. Both parties have expressed hope to resolve this problem swiftly and we hope it does not harm our trade ties with India.”
The U.S. Treasury Department in September sanctioned EIH for facilitating billions of dollars of transactions with Iranian banks that the United States and European Union have blacklisted for aiding Iran’s nuclear or missile programs.