Indian refiners have been told to prepare to deposit $700 million with United Commercial Bank in readiness for it to pass on the first installment of oil payments owed to Iran, two sources with knowledge of the matter said, ahead of the expected lifting of sanctions against Tehran.
The refiners, Essar Oil, Mangalore Refinery and Petrochemicals, Indian Oil Corp, Hindustan Petroleum Corp and HPCL Mittal Energy, owe a total of more than $6.6 billion. The $700 million part-payment will be split in line with the proportion owed by each.
India is Iran's biggest oil client after China, though New Delhi has reduced purchases under pressure from sanctions and Tehran has slipped to the seventh biggest supplier from the second before sanctions, Reuters reported.
After the landmark nuclear deal between Iran and the six world powers struck on July 14 in Vienna, sanctions could begin to be removed later this year if UN inspectors confirm Tehran is complying with its provisions.
The nuclear agreement would limit the Persian Gulf country’s nuclear program in return for removing sanctions on its energy and financial industries.
Indian refiners together owe Iran more than half of the bill for crude bought since February 2013, when a route to pay for Iranian oil through Turkey's Halkbank was stopped. Under an interim nuclear deal in November 2013, some of Iran's blocked funds were released by Asian buyers, including India.
Payment Process
Indian companies have deposited 45% of their oil payments in a rupee-denominated account at United Commercial Bank, which Iran is allowed to use to buy goods not covered by sanctions, such as food and medicine.
The Indian payments are likely to be conducted using a mechanism based on a series of back-to-back transactions in different currencies that are initially channeled through the Reserve Bank of India, the sources said.
According to Reuter's last month report quoting unnamed sources, Indian Finance Secretary Rajiv Mehrishi asked refiners this month to prepare to pay Tehran two installment of $700 million, part of the money owed for oil imports.
Iran would eventually get the payment in dirhams from the United Arab Emirates' central bank, the report said.
Business With Iran
India will hope to benefit directly and indirectly from Iranian oil coming on to the market in the short to medium term. It might import more oil from Iran, partly to keep its supplier base diversified. Indian oil and gas companies have been active in Iran in the past and they will likely consider returning.
State-owned oil and gas company ONGC has been trying to win the rights to develop the Farzad-B Gas Field it had discovered a few years ago in the Persian Gulf.
A delegation of Oil Ministry and state-owned energy company officials visited Iran in the spring to explore other opportunities. However, Indian companies will face stiff competition with international oil giants, including Italy's Eni, France's Total and Royal Dutch Shell, who have voiced interest in returning to Iran's rich oil and gas sector.
