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$5-bn unpaid bills: No Iran oil for Indian refineries!

Last updated on: July 21, 2011 17:16 IST

$5-bn unpaid bills: No Iran oil for Indian refineries!

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In signs that Iran is serious about shutting off crude oil supplies to India over unpaid bills, the Islamic Republic has not allocated any volumes for supply to any of the Indian refiners for August.

The tough stand by a nation that supplies 12 per cent of India's oil needs has forced refiners to buy extra crude from Saudi Arabia, Kuwait, United Arab Emirates and Iraq while sending the government scrambling for a conduit to clear $5 billion in overdue bills.

Iran, which has been selling crude oil on credit since late December when Reserve Bank of India halted use of a clearing mechanism under pressure from the United States, had on June 27 written about stopping supplies from August if the dues are not paid.

Mangalore Refinery (MRPL), Essar Oil, Hindustan Petroleum (HPCL), Indian Oil (IOC) and Bharat Petroleum (BPCL) have not received any intimation from National Iranian Oil Co (NIOC) on the quantity of crude they will get from Iran in August, officials at the refiners said.

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Photographs: Reuters
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MRPL, the largest buyer of Iranian crude at 1,42,000 barrels per day, has sought additional volumes from Saudi Arabia to meet the shortfall, they said adding Essar already has alternate supplies tied-up for two-third of the 110,000 bpd of oil it had contracted from Iran.

HPCL is talking to Saudi Arabia and the UAE to make up for the shortfall of 2 cargoes per month it gets from Iran under its 68,000 bpd annual supply contract.

Officials said BPCL had signed up for import of 1 million tonnes (20,000 bpd) from Iran this year. The supplies were to start in August but uncertainty over payments has meant that it will not get any crude.

Sources said a team of RBI officials last week visited Russia to explore paying $12 billion for annual imports from Iran while routing payments through Turkey and the UAE were also being explored.

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Routing payments in lira through state-owned Turkiye Halk Bankasi in Istanbul and in Euro through the Central Bank of the UAE were under finalisation.

The identified banks were agreeable to the US which is creating hurdles against routing money through Iranian banks like Germany-based EIH, which was briefly used to clear some outstanding earlier this year before that route was blocked.

India's debt to Iran for unpaid oil has mounted to more than $5 billion after RBI last December stopped using the Asian Currently Union, winning praise from the US which is using sanctions to force Tehran to halt its nuclear programme.

Meanwhile, the government has asked its officials not to speak anything on the issue of alternative mechanism being worked out to pay for Iranian oil. It fears any such news leaks could lead to US exerting pressure to block the conduit.

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Officials said BPCL, HPCL and Essar Oil have each asked for 1 million barrels of extra oil from Saudi Arabia for August.

MRPL said it is seeking additional supplies from Kuwait, Abu Dhabi National Oil Co (ADNOC) of UAE and Saudi Aramco of Saudi Arabia.

Earlier this week, Iranian foreign ministry spokesman Ramin Mehmanparast had stated that "if the Iranian side feels it cannot receive the money for its exported oil punctually and under desirable conditions, it will reconsider" its crude exports to India.

Iran has been supplying some 4,00,000 bpd of crude to India on credit since late December last year when RBI scrapped a long-standing mechanism to pay using a clearing house system run by regional central banks.

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On June 27, National Iranian Oil Co (NIOC) had written to refiners like MRPL and Essar Oil, who are the principal buyers of Iranian crude, demanding that a mechanism be put in place to pay for its oil supplies, failing which supplies will be stopped from August.

The UN sanctioned regime in Iran can ill-afford to lose its second-biggest crude buyer after China, accounting for about 20 per cent of its exports. "Without India, Iran will be left with just China and Korea as buyers," an official said.

Earlier this month, Iran said it had "seriously warned" Indian refineries of the possibility of a halt in oil exports because of overdue payments.

And on Monday, Fars news agency, quoting an unnamed Iranian oil official, said crude deliveries to India for August would be withheld unless the payment problems are resolved.

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Mehmanparast had stated that the Iranian side "will review the issue, if there is a problem (over payments), the transaction will be halted. If there are no problems, it will continue".

The US and the European Union have targeted Iran's banking, financial and vital energy sector to halt the Islamic nation's nuclear programme.

Banking channels in Europe and several other countries have shied away from routing the $12 billion payment a year to Iran fearing they might be slapped with sanctions.


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