Iran oil: Sushma Swaraj to take a call on India’s stance

The Minister for External Affairs Sushma Swaraj and her team are set to take a final call on how India will deal with the US President Donald Trump’s threat to impose sanctions on countries importing oil from Iran after the November 4 deadline.

Meanwhile, domestic oil refiners have adopted a ‘wait and watch’ approach before placing fresh orders as expectations are that the government may take a decision soon.

The Commerce Ministry, together with the Finance Ministry, Ministry for External Affairs, Petroleum Ministry and the RBI, is looking at ways to continue trade with Iran, including import of oil.

This is not the first time Indian oil refiners, both in the public and private sector, will be facing a challenge of this kind in dealing with one of the key suppliers — Iran — following Western sanctions on doing trade with the Islamic state.

“A clear approach needs to be adopted and there should be no contradictions between the various government ministries or stakeholders. Crude supply availability will not be a challenge as the refiners have been reworking their crude sourcing basket cautiously over the years,” said a senior official with one of the public sector refiners.

What the government needs to decide is whether refiners should continue sourcing oil from Iran or should there be a restriction? If there is a restriction on sourcing then to what extent should the oil companies cut supply from the Islamic State?

“Only after decisions on such aspects are taken will the issues of transportation from Iran, including re-insurance of shipments and mode of payment come up,” said another official adding “what makes Iranian oil attractive for them is that they are cost effective — discounts on trade cost or longer credit period”.

“We have to look at the impact of not going with US restrictions. The format of the sanction is slightly different this time. We are looking at the mechanics of how to keep trade going,” a government official said adding that the solution has to work for the government of Iran too.

Since the sanctions affect banks that have exposure to the US market, one has to examine carefully the boundaries within which they should act, he said adding, “The exposure of banks to the US market has increased in the last few years. So, they need to be careful.”

Rupee-rial payment

During the recent visit of the Iranian Foreign Minister Javad Zarif to New Delhi, both sides discussed the option of reviving the rupee-rial payment mechanism established six years ago to deal with the Western sanctions that were subsequently lifted in 2015.

Under the barter-like arrangement operated by India’s UCO Bank, about 45 per cent of the oil payments to Tehran was made in rupees through UCO Bank. A part of the rupee deposits in Iran's account was then used by Iranian importers of Indian products to pay for their purchase.

While during the previous round of sanctions against Iran, the rupee-rial arrangement could work as the UCO Bank does not have any exposure to the US market, this time under the sanctions imposed by the Trump regime, things could be more difficult.

“UCO doesn’t have direct exposure in the US. But it is dealing in dollar business and Letters of Credit (LCs) in collaboration with corresponding banks that may be in the US. So if they lose the corresponding bank relationship, they will also lose their LC business,” another official explained.