Senior government official told FE on condition of anonymity, The finance ministry has sent a letter to national security adviser Shivshankar Menon to convene a meeting shortly to identify a new channel for payment. The official further added that Russia has refused to allow the transaction to happen through Moscow as it does not want to face the US sanctions which might soon be backed by the EU sanctions.
Moreover, the quantum of transaction suggested by Russia is very small compared with the transaction dealt by India. Hopes of resolving the payment issue has risen when prime minister Manmohan Singh visited Russia recently as part of Annual summit, where energy and defence issues were high on the agenda. Now with Moscow out of option, the government may negotiate with Japan to resolve its payment dispute crucial to energy security of India.
Banking on the strong bilateral relation India shares with Japan, government is hopeful that Yen can be used as a currency to make the oil payments. The fresh channel via Japan comes at the time when Japanese prime minister Yoshihiko Noda is on his two day trip to New Delhi, working to strengthen Indo-Japan global partnership. The Japanese PM is expected to sign a currency-swap accord, estimated at $ 10 billion with India, which could help both countries deal with currency fluctuations.
In 2010-2011 Japanese foreign direct investments totalled $3.62 billion. Moreover, the India-Japan bilateral trade has shown a robust increase of 24% at $13.2 billion during January-September on the back of Comprehensive Economic Partnership Agreement (Cepa).
With the fresh US sanctions against Iran coming to light, India has been deliberating on various options to resolve the payment issue. Iran is the second biggest crude oil supplier after Saudi Arabia. The National Iranian Oil Company (NIOC) supplies about 12 million barrels every month to Indian refiners. The current mechanism via Turkey cannot be continued in view of these sanctions.
Indias crude oil imports from Iran has witnessed a dispute over the payment mechanism after the Reserve Bank of India last year scrapped a payment mechanism called the Asian clearing union, apparently under pressure from US that wants to penalize Tehran for its nuclear enrichment programme. India has so far made payment of 1.5 billion euros to NIOC since then outside the system that existed earlier.