Iranian oil: Decision in July on fund to protect local refiners

The fate of the proposed sovereign fund, meant to protect the local refiners using Iranian crude oil, will be decided in July when the current relaxation of sanctions by the West on imports from the West Asian country ends.

India decided to set up a ₹2,000-crore sovereign fund (Indian Energy Insurance Pool) to back the domestic insurers covering refineries that are dependent on Iranian crude oil, as the sanctions against Iran’s disputed nuclear programme discouraged global re-insurers from taking on the risk.

Saurabh Chandra, Secretary, Ministry of Petroleum and Natural Gas, told

Business Line that “this decision was taken at the senior officials’ level. The situation will be reviewed and then a call will be taken on the creation of the fund.”

Though Indian insurance companies are not governed by the US and EU sanctions, they do depend on re-insurance from companies in developed nations, because of the high risks.

Another official from the Ministry said: “Other channels for re-insurance are also being looked at. The issue is with EU re-insurers, the companies can look at other countries like Japan.” India’s total pending crude oil payments to Iran is over $3 billion. These dues are likely to be cleared through Oman. These pending bills are for the period starting February 6, 2013, when the Turkey route of payment for oil sourcing was halted following the Western sanctions on the Gulf nation.

Industry sources said India has been asked by Iran to make payments in Omani rials. Officials in the Ministry, however, remained non-committal. Mangalore Refinery and Petrochemicals Ltd (MRPL) is likely to clear its pending dues of about $1.5 billion in three tranches of $500 million each.

Following the Western sanctions on Iran, India has put in place a rupee payment mechanism which allows it to pay for 45 per cent of oil purchase in its local currency. The mechanism has so far been successful with very little money lying idle in Iran’s rupee account held with UCO Bank.

Imports

Countries dependent on Iranian oil, such as India, have been told to gradually reduce their purchases from the Gulf country. The current relaxation on sanctions for importing is effective from January 20 to July 20.

Following the Western sanctions, India had drastically reduced its imports from Iran, closing 2013-14 with 11 million tonnes (mt).

Imports from Iran have fallen from 21.20 mt in 2009-10, to 18.50 mt in 2010-11, 18.11 mt in 2011-12, and 13.14 mt 2012-13.