The fear of impending US sanctions on Iran has prompted the State Bank of India to stop processing payments for crude oil purchases. In a communication to public sector undertaking refiners, SBI has said that it will not be able to process payments for their crude oil purchases from November, according to officials in the know.

"We were told by SBI to intimate in advance if we had to make any payments from Iran. Now we have been told that payments for crude purchases cannot be processed from October end – November. This is on account of pressure from US sanctions on Iran,” a Hindustan Petroleum Corporation Limited official aware of the development told BusinessLine.

“We have also been steadily cutting our dependence on crude oil from Iran,” the official added.

Till now public sector refiners were routing their Iranian oil payment via SBI and Germany-based bank Europaeisch-Iranische Handelsbank AG (EIH). Industry watchers fear that continuing to facilitate payments for Iranian crude oil will hamper SBI’s interests in the US in light of the looming sanctions.

Alternative payment mechanisms

PSU oil refiners have been evaluating alternative options to process payments once US led sanctions on Iran kick in from November. SBI’s move will affect supplies that are due to take off in August.

The measures under consideration include the revival of the rupee payment mechanism that was facilitated by the UCO Bank when the previous round of US sanctions on Iran was in force. India has reportedly sought an exemption from the sanctions for crude oil and gas purchases. There have also been reports that India has challenged the US sanctions on Iran.

India’s crude oil imports from Iran had risen steadily to 27.2 million tonne during 2016-2017 from 11 million tonne during financial year 2014-2015. The rise in imports corresponded with the softening of US position with regards to Iran when the Islamic state agreed a long-term deal on its nuclear programme with the P5+1 group of world powers - the US, UK, France, China, Russia and Germany in July 2015.

But dispute over the development of the Farzad B gas field with Iran prompted India to cut imports during the financial year 2017-2018. Till February 2018 end, crude oil imports from Iran stood lower at 20.4 million tonne, according to an official statement.

Sanctions impact

The Ministry of External Affairs has already reached out to other Ministries and Departments such as Finance, Commerce, Ports and Petroleum to work on a strategy to deal with the impact of the fresh economic sanctions imposed by the US on Iran.

In May this year, US President Donald Trump had decided to opt out of the nuclear accord that Iran had reached with the US, UK, France, China, Russia and Germany in 2015. According to the deal, Iran agreed to limit its sensitive nuclear activities and allow international inspectors in return for the lifting of economic sanctions that the Western economies had imposed on it.

Apart from opting out of the deal, the US has also imposed much harsher sanctions on Iran.

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