India to pay for Iranian crude in euro

New Delhi, Feb 3 (PTI) Ending a six-week long stalemate,
India on Thursday decided to use euro to pay for Iranian crude
oil but will route the payment through a German bank instead
of its central bank.
Banks like State Bank of India (SBI) had refused to
facilitate payments for Iranian oil after Reserve Bank of
India (RBI) on December 23 clamped down on the main conduit
used by the Indian companes to pay for the Persian Gulf nation
imports, which make up for over 12 per cent of the nation's
oil needs.
But, Iran had continued to supply oil on credit despite
the outstanding amount crossing a staggering USD 3 billion.
"It was decided today that euro payments will be made
through Hamburg-based Europäisch-Iranische Handelsbank AG (EIH
Bank)," a finance ministry official said after a high-level
meeting called to end the deadlock.
The meeting was attended by National Security Advisor
Shiv Shankar Menon, Economic Affairs Secretary R Gopalan,
Foreign Secretary Nirupama Rao and Oil Secretary S
Sundareshan.
"SBI has been instructed to start clearing the backlog
payments beginning this evening," the official said. Oil
companies like Essar Oil will transfer money to SBI who in
turn will use its Frankfurt branch to route payments to EIH.
The nation's largest lender will first clear the over USD
2 billion payment backlog for the four month period beginning
September 2010.
An additional USD 1.3 billion worth of oil was bought
after December 23, when the RBI disallowed payments for
Iranian crude using a long-standing clearing house system run
by the central banks of nine countries --including India and
Iran-- dubbed as the Asian Clearing Union.
National Iranian Oil Co (NIOC) has an account in EIH and
the Central bank of Germany, Deutsche Bundesbank (DBB) had
cleared it for receiving euro payments for Iranian crude.
DBB has agreed to receive euro payments for the Iranian
oil, provided the importing entity or its bank issues a
certificate that the money will not be used for trade in any
commodity that is under UN or European sanction, the official
said.
He added import of crude oil from Iran has not been
banned by either UN or European Union.
EIH was suggested for routing payments even earlier but
SBI had resisted it fearing its business in US might get
affected. It wanted a comfort from the government and both
NSA and Foreign Secretary fully backed euro payments through
EIH, he said.
India imported 21.3 million tonnes of crude oil from Iran
in 2009-10 and imports in 2010-11 are expected to amount to
around 18 million tonnes, as Reliance Industries has totally
stopped using crude oil from the Persian Gulf nation.
India imports 12 million barrels of crude oil every month
from Iran, which is the nation's second-largest supplier
behind Saudi Arabia.
The RBI on December 23 stated that trade transactions
with Iran must be settled outside the Asian Clearing Union, a
regional payment mechanism that allowed companies to skirt the
US and European restrictions on doing business with the Middle
East country.
Earlier, refiners in India used the ACU, which settles
payments in dollars and euros, to pay for oil purchases from
Iran.
Regulations endorsed by the EU in October required deals
involving Iran and the euro to be accompanied by a certificate
outlining payment details for each and every transaction.
Under the ACU mechanism, payments for all trade deals
between member countries are settled every two months, with
individual transactions not being accounted for separately.
MRPL is the biggest importer of Iranian crude oil in the
country, sourcing about 4 million barrels every month, which
amounts to 7.1 million tonnes every year. Mumbai-based Essar
Oil imports roughly 3 million barrels every month (about 5
million tonnes a year) and IOC and Hindustan Petroleum Corp
(HPCL) about 3 million tonnes each.
ACU, based in the Iranian capital of Tehran, settles
trade transactions between Bangladesh, Bhutan, India, Iran,
Nepal, Pakistan, Maldives, Myanmar and Sri Lanka.
Till 2008, payments to Iran under the ACU mechanism were
done in the US dollars, but after the United States imposed
sanctions against the Middle East country over its suspected
nuclear weapons programme, the currency was switched to the
euro.
United Nations' sanctions do not forbid buying Iranian
oil and recently the European Central Bank (ECB) asked the RBI
to provide certificates that the euro is being used to import
products that are not on the US sanctions list.
Sources said while certification for crude oil imports
was easy to provide and track, the RBI chose to scrap the
system altogether.