India is planning to give a free hand to its oil trade negotiators to identify and approach any third country without prior cabinet approval and find a payment route for oil imports from Iran. Oil imports from the West Asia are getting choked under international financial and trade sanctions for Iran?s clandestine nuclear programme.
The idea of empowering the team of negotiators comprising members from the Reserve Bank of India and the ministries of petroleum, finance, external affairs and commerce is to avoid red tape and unnecessary delays in finding a new payment channel for oil imports. Any new development has to be reported to the cabinet committee on security for approval.
India, which imports about 21 million metric tonne of crude oil from Iran, second only to purchases from Saudi Arabia, is finding it difficult to make payments as the US sanctions on Tehran seeks to prevent the global financial system being used for it.
The Indian delegation is set to visit Tehran in the third week of January to explore the option of making more payments in rupee for oil imports. The delegation will also discuss the possibility of making indirect payments to Iran such as meeting Tehran’s payment obligation to third countries.
Before Indian delegation leaves for Tehran, government has sought a mandate from the Cabinet Committee on Security (CCS) to find a payment route through any third country.
A senior government official said the proposal will be put before the CCS on January 12. The plan is to give the delegation the freedom to negotiate with any country without taking prior permission from CCS every time it approaches any country.Now the CCS clearance is compulsory before starting talks with any country, making the whole process cumbersome. With the United States intensifying sanctions against Iran, greater flexibility to Indian delegation is crucial as oil supplies from Iran risks disruption.
India is also proposing to allow the National Iranian Oil Company (NIOC) to directly open a rupee account with UCO Bank and IDBI Bank to make the payments. ?We are considering enhancing the rupee payment account to facilitate payments?, said a senior official from the Indian side. The RBI recently allowed Iran’s central bank to open rupee accounts with Indian public sector lenders UCO Bank and IDBI Bank. Indian oil firms make payments worth 20% of their dues through these accounts. The government is planning to increase this window to 35% of the payments due.
Last week India?s National Security Advisor Shiv Shankar Menon held discussions with officials from the Indian ministries of finance, petroleum and external affairs as well as the RBI new payment routes following indications that Turkey’s state-run Halkbank would stop settling oil payments on behalf of India.
India’s crude oil imports from Iran got entangled in a dispute over the payment mechanism after the RBI last year scrapped a 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.