RBI stifles Iran oil imports

Reuters, The Reserve Bank of India has said it will not facilitate payments for Iranian crude oil imports — another blow to the Islamic Republic’s oil business, as global pressure on Tehran grows over its nuclear programme.

Although United Nations sanctions do not forbid buying Iranian oil, the US has pressed hard for governments and companies to stop dealing with Tehran. Many oil majors and banks have abandoned their dealings since then.

US President Barack Obama visited India last month and said he supported its bid for a permanent UN Security Council seat.

Indian oil import payments to Iran would have to be settled outside the existing Asian Clearing Union (ACU) mechanism, which involved the central banks of India, Bangladesh, Maldives, Myanmar, Iran, Pakistan, Bhutan, Nepal and Sri Lanka, RBI said in a statement on Thursday.

“It has now been decided that payment for import of oil and gas should be settled in any permitted currency outside the ACU mechanism,” the statement said.

Petroleum industry sources said the change notified by RBI could hurt their imports, as it would force National Iranian Oil Co (NIOC) and Indian firms to find a common platform — probably a European bank — for settling trade, instead of the central banks.

“Somewhere, we (NIOC and Indian companies) have to converge, otherwise there will not be any trade,” said a source at one of the oil companies with direct knowledge of the matter.

Iran is a major oil producer and the only exporter among the ACU bloc, while India is the biggest importer among them. Trade with Iran faces credit hurdles due to sanctions.

India imported about 426,000 barrels a day from Iran in 2009-10, but this may decline, as major refiner Reliance Industries has not renewed its term deal.

The sanctions make it difficult to open letters of credit, which are often required for the buyer and seller of a cargo to guarantee payment upon delivery or at an agreed future date.

Another industry source said the move could make imports extremely difficult.

Asked if the move by RBI would make Iranian crude oil expensive, the source said: “No, I don’t think it would be easy to import at all.”

Finding an alternative bank for Iranian oil trade instead of central banks would be difficult, this source said, adding EIH Bank of Germany, which used to act as a facilitator for such transactions for the ACU members, had been brought under sanctions.

The US Treasury Department in September imposed sanctions on Tehran-owned European-Iranian Trade Bank AG, called EIH Bank in Germany, for facilitating billions of dollars of transactions with Iranian banks that the US and the EU have blacklisted for aiding Iran’s nuclear or missile programmes.