India will make a $700 million oil payment to Iran on Wednesday, sources said, the first release of such funds after the July deal on the country's nuclear program that sets the roadmap for the lifting of sanctions against Tehran.
Partial payments of some of Iran's oil dues have been allowed since early 2014 on the basis of a temporary deal that was a prelude to the July agreement, Reuters reported.
Refiners will be making payment in rupees equivalent to $700 million to the state-run UCO Bank on Wednesday this week, said three sources with direct knowledge of the matter.
They said UCO Bank has already bought dollars in the forward markets for payments into the Central Bank of Iran's account with Oman's Bank Muscat.
The sources said US Treasury's Office of Foreign Assets Control has already approved the banking mechanism and payment of $1.4 billion by Indian refiners in two equal installments to Tehran. Timing for the second installment is not yet known, the sources said.
Indian refiners have been depositing 45% of their oil payments to Iran in rupees with UCO Bank since 2012.
Tehran uses the funds, currently more than 170 billion Indian rupees, or $2.57 billion, for importing non-sanctioned goods from New Delhi, the sources reportedly said
Refiners have been holding the remainder after a route to pay for oil through Turkey's Halkbank was stopped in 2013 under pressure from sanctions, although payment of some of those funds was allowed after the initial temporary deal.
Indian refiners owed about $6.6 billion to Iran as of the end of August. Essar Oil owes about $3.1 billion, Mangalore Refinery and Petrochemicals Ltd $2.8 billion, followed by Indian Oil Corp, which owes $581 million. HPCL-Mittal Energy Ltd owes $97 million and Hindustan Petroleum Corp has to pay $29 million.
Sources said HMEL, which last made purchases from Iran in 2013, has not been participating in the payment mechanism because of a sharp decline in the rupee since then.
The remaining four companies will pay Iran amounts in proportion to what they owe, the sources said. India is Iran's biggest oil client after China, although New Delhi has reduced purchases under pressure from the sanctions. Tehran is now its seventh-biggest supplier, down from the No. 2 spot in the pre-sanctions era.
