New Delhi: A payments dispute between India and Iran escalated after Tehran refused to sell oil to India under New Delhi's prohibitive new rules, sources on both sides said on Wednesday.
The Indian sources said officials from the central banks of the two countries were to meet today as Iran seeks to rescue trade worth around $12 billion (Dh44.1 billion) a year, at risk from rising US pressure for countries to abandon all trade dealings with Iran.
Last week, the Reserve Bank of India said deals with Iran must be settled outside the Asian Clearing Union (ACU) system, used by central banks of member nations to settle bilateral trades.
Analysts predicted talks would be tough and that New Delhi may face a costly bill if it abandoned Iranian oil imports.
Iran is under global pressure due to its nuclear programme, and although United Nations sanctions do not forbid the purchase of Iranian oil, the United States has pressed hard for governments and companies to stop dealing with Tehran.
India is the biggest buyer of Iranian crude among ACU members, with state-owned refiners and privately owned Essar Oil taking around 400,000 barrels per day.
Payments
Two Indian industry sources said on Wednesday that National Iranian Oil Co (NIOC) had turned down Indian oil firms' request for payments outside the ACU. The ACU includes the central banks of India, Bangladesh, Maldives, Myanmar, Iran, Pakistan, Bhutan, Nepal and Sri Lanka.
"Indian firms had asked Iran to immediately nominate a bank in Europe through which payment can be made. But NIOC refused," said one of the sources.
When asked if NIOC was willing to accept any mechanism outside the ACU, a NIOC source said: "It is not acceptable to NIOC as this exercise... (has been) in place for so many years".
Iran's central bank requested a meeting with its Indian counterpart, a Reserve Bank of India (RBI) spokesperson said, adding no date had been set.
But an oil industry source said the talks would be today in Mumbai.
He said India's oil ministry has suggested that RBI stick to the old mechanism of guaranteed payments for oil for now.
Ambika Sharma, deputy secretary general at the Federation of Indian Chambers of Commerce and Industry, said: "The two central banks could look at settling the trade transaction in a currency other than the euro and the US dollar".
US pressure
Indian analysts said the oil dispute was the result of US pressure to stop dealing with Tehran to force it to abandon its nuclear programme.
The White House on Wednesday praised the Reserve Bank of India for reducing its dealings with Iran's central bank.
"We think the Reserve Bank of India has made the right decision to carefully scrutinise and reduce its financial dealings with the Central Bank of Iran," White House spokesman Tommy Vietor said. "This latest action adds to the growing list of companies, financial institutions and governments that are increasingly concerned about Iran's misuse of trade and financial relationships to support illicit activity, including its nuclear programme."
Tehran has said it pursues only peaceful goals and is not trying to build a nuclear bomb.
US President Barack Obama visited India last month and promised to help New Delhi boost its global role.
"Iran is already struggling to place their crude in the market, and any stoppage of supply to India will further escalate the problem specially when series of sanctions are imposed on them," said Praveen Kumar, who heads consultancy FACTS Global Energy's South Asia oil and gas team.
New Delhi seeks solution
India expects a solution to its dispute with Iran over payments for oil in the next few days, its oil secretary said yesterday, which would rescue trade worth $12 billion (Dh44.1 billion) a year to the sanctions-hit Islamic Republic.
India's central bank has said deals with Iran must be settled outside the long-standing Asian Clearing Union system and Iran has refused to sell oil under the new rules. "We are working on an alternate settlement mechanism. It is being discussed at length with the ministry of finance and a solution will be found in the course of the next few days," Indian Oil Secretary S. Sundareshan said. "The Asian Clearing Union mechanism ... is under some stress and RBI wants to make changes in this mechanism," he added.
