Indian refiners may soon be forced to stop importing crude oil from Iran after insurance companies said refineries processing oil from the Persian Gulf nation will no longer be covered.
Western sanctions aimed at crippling Iranian finances by drying up buyers for its crude oil, had last year banned insurance cover to ships carrying Iranian oil.
Since most of the maritime insurance industry is based in Europe and insurers rely on European reinsurance markets to hedge their risk, shipowners refused to ferry Iranian oil.
That problem was overcome by Indian state-owned insurance companies providing cover to Iranian ships carrying oil from the Persian Gulf nation. But now, banks and insurers with EU or US business ties have for the first time said that even the refineries processing oil from the Persian Gulf nation will not get cover.
Sources at public and private sector refiners using Iranian oil, said the insurance companies, fearing blacklisting by US and Europe, have indicated that cover for refineries will not be available.
While crude oil imports from Iran continue for the time being, this could become a problem as no refiner can operate without an insurance cover.
"There has been talk of this for some time now but they have not said it openly that insurance cover will not be withdrawn," a top official at one of the companies said.
Mangalore Refinery and Petrochemicals Ltd, India's second biggest buyer of Iranian oil after private sector Essar Oil, said it will have to halt crude imports from Iran in absence of insurance cover.
"What options do I have," MRPL Managing Director P P Upadhya told PTI. "Insurance companies have said my refinery does not have insurance cover so I am looking
Sources said the General Insurance Corp of India feels that cover and losses on processing the Iranian crude would not be payable by reinsurers due to existing sanctions.
MRPL, Upadhya said, continues to get crude oil and will end the fiscal with 4 million tonnes of oil from Iran.
Essar Oil will import 15 per cent less oil from Iran at about 80,000 barrels per day.
Last month, US tightened its Iranian sanctions barring imports from paying for the oil with dollars and euros.
Under penalty of expulsion from the US banking system, Iranian crude customers such as China and India have been restricted to using their own currencies for the purchases.
Importers are being compelled to keep the payments in escrow accounts that Iran can use only for locally sourced goods and services, in what will amount to barter arrangements.
Since February 6, India too is paying for Iranian imports in rupee.
India had been, since July 2011, been paying in euros to clear 55 per cent of its purchases of Iranian oil through Ankara-based Turkiye Halk Bankasi. Rest of the payments are made in rupees in Kolkata-based UCO Bank.
While the euro payments have stopped, India continues to pay for Iranian imports in rupee, sources said.
Sources said the new sanctions mean that National Iranian Oil Co will have to essentially keep all the revenue it earns from selling oil to Indian refiners in UCO or any other permitted local bank.
These can be used for buying permissible goods and services.
This may sound workable but the problem is that Iran's imports from India are just one-fifth of the revenue it earns from sale of oil. With US sanctions barring sale of any defence or technology intensive equipments, New Delhi has not allowed Iranians to invest in its securities or debt.