New Delhi: Oil Minister Dharmendra Pradhan on Monday said two state refiners have placed orders for importing crude oil from Iran in November, the month when US sanctions on Iranian oil purchases take effect. “Two of our oil companies have made nominations to purchase Iranian oil in November,” he said speaking at The Energy Forum here. “We do not know if we will get waiver (from US sanctions) or not.”
This is the first time Pradhan has spoken about India’s stand on buying Iranian oil once the US sanctions on Iran come into force from November 4. Later, talking to reporters, he said India has its own energy requirements which it has to fulfil. “We will be guided by our national interest,” he said.
Indian Oil Corp (IOC) Chairman Sanjiv Singh said his company is among the two which have placed order for November. “We have ordered for our usual quantity of oil,” he said. IOC and Mangalore Refinery and Petrochemicals (MRPL) together have placed order for 1.25 million tonne (MT) of crude oil from Iran. Singh said options for paying for Iranian oil are under discussions.
US sanctions against Iran will kick in from November 4, which will block payment routes. Paying in rupee is an option. Iran can use the rupee to settle its imports of pharmaceuticals and other goods from India. “Even without sanctions also, Iran had been accepting payments in rupee. So let us see how it evolves,” he said.
While India wants to continue importing Iranian oil, albeit a reduced volume, US Secretary of State Mike Pompeo last month stated that Washington would consider waivers on the embargo but made it clear that these would be time-limited, if granted. Singh said IOC is importing the “usual” monthly volumes of oil from Iran. It had planned to import 9 MT of Iranian oil in 2018-19 financial year or 0.75 MT a month.For rupee payments, oil companies could use UCO Bank or IDBI Bank to route oil payments to Iran, sources said.
India had planned to import about 25 MT of crude oil from Iran in 2018-19, up from 22.6 MT imported in 2017-18. But the actual volumes imported may be far less as companies like Reliance Industries have totally stopped buying oil from Iran and others too are scaling it down in hope of winning a sanction waiver from the US. Nayara Energy, formerly Essar Oil, too is stopping import from the Persian Gulf nation.
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. Sources said Iran is open to accepting rupee payment for oil and may use the money to pay for equipment and food items it buys from India.
UCO Bank and IDBI Bank have been identified to route the payment as the two have no exposure to the US financial system. UCO Bank had in the previous round of sanctions handled rupee payments. 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 till 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 MT and 10.95 MT respectively from it.
Sourcing from Iran increased to 12.7 MT in 2015-16, giving it the sixth spot. In the following year, the Iranian supplies jumped to 27.2 MT 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.