Supply of crude oil from India?s second-largest supplier Iran looks set to dry up unless officials from both the nations meeting in Mumbai on Friday find a solution to the uncertainty over a payment framework acceptable to both. Oil marketing companies IOC and HPCL said a supply disruption from Iran would significantly impact their crude availability, while BPCL said its supplies may not be affected much. While private sector refiner Essar Oil too has significant exposure to Iranian crude, Reliance Industries, the largest private sector refiner, has stopped buying crude from the west Asian nation.

Any addition to India?s oil import bill arising from the disruption of supplies from Iran ? which accounts for 12% of the country?s crude oil imports ? could adversely impact the fisc as well as the financials of oil refiners. What could make matters worse is the spike in crude oil price (Indian basket of crude has touched $91 a barrel) which can strain the financial health of fuel retailers.

HPCL said it will be impacted in a big way by RBI?s December 23 directive asking companies to settle current account and trade transactions with Iran outside the Asian Clearing Union (ACU), a payment mechanism involving central banks of nine nations in the region. The decision has rubbed Tehran the wrong way, raising uncertainty over trade, particularly import of crude.

K Murali, HPCL?s director (refineries) told FE that of the company?s total import of 11 million tonnes of crude every year, imports from the National Iranian Oil Company (NIOC), a state-owned corporation, constitutes 3.35 mmtpa (million tonnes per annum).

?This will amount to two tankers of crude imported from Iran every month,? he said. ?We are impacted in a big way by the RBI decision, and the finance heads of all state-owned refining companies are grouping together to find a way out,? he added. HPCL also imports from Saudi Arabia (Saudi Aramco), Abu Dhabi, Kuwait and Malaysia.

A senior IOC official said Iran is a major source of crude for the company along with Kuwait, Saudi Arabia and some other countries in the middle East. ?We do long-term, short-term and spot purchases of crude from Iran, which is one of our major suppliers,? said the official, who asked not to be named. IOC imports about 3.5 million tonne from Iran.

BPCL director (finance) SK Joshi said the RBI move will not impact the company much, since it imports very little from Iran. ?Although Iran is a significant exporter of crude, BPCL has very little exposure to them, since most of its imports come from Saudi Arabia, Malaysia and Kuwait.?

The total crude requirement for BPCL and its group company is around 22 mmtpa. About 40% of this requirement is met through indigenous crude production by ONGC and OIL, and the remaining, through imports, on term and spot basis.

Iran accounts for over 12% India’s oil needs in terms of quantity and supplied 21.3 million tonnes in 2009-10. This year, imports are expected to be around 18 million tonnes. India buys crude worth $11 billion from Iran, which accounts for about 14% of its total crude import bill.

State-owned Mangalore Refinery & Petrochemicals Ltd, IOC and private-sector Essar Oil are among the largest importers.

The petroleum ministry is keen to arrive at an early solution to the uncertainty. Petroleum secretary S Sundareshan told reporters Thursday that the deputy governor of Iran’s central bank is visiting India on Friday to meet RBI officials to resolve the uncertainty over the mode of payment for imports.

?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,? Sundareshan told reporters. An alternate payment mechanism could be in any currency, Japanese yen or their local currency, he said.

?The RBI, the (Indian) government, the Iran government and the central bank of the Islamic Republic of Iran will have to find out a mechanism on how to transact business,? RBI deputy governor KC Chakrabarty said.

According to an oil & gas analyst who did not wish to be named, Indian companies will now have to look at alternate sources of crude, or at other methods of financial settlement. Although Iran is an important exporter of crude into India, it was also one of the major importers of refined products from India.

However, with trade sanctions in place against Iran, Indian companies like Reliance have backtracked on their planned investments in that country. MRPL is the biggest importer of Iranian crude oil at 7.1 million tonnes.

Essar Oil imports roughly 3 million barrels per month (about 5 million tonne a year).