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Wed 29 Dec 2010 07:49 PM

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Iran, India oil row escalates; central bankers to meet

National Iranian Oil Co turned down Indian oil firms' request for payment outside the Asian Clearing Union

Iran, India oil row escalates; central bankers to meet
IRAN OIL: India is the biggest buyer of Iranian crude gobbling up around 400,000 barrels per day (Getty Images)

An oil trading dispute between India and Iran escalated as 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 will meet on Friday as Iran seeks to rescue trade worth around $12bn a year, which could be jeopardised by rising US pressure on countries trading with Iran to abandon all dealings.

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 might have to pay a costly bill should it abandon Iranian oil imports.

The Islamic Republic is under global pressure over its nuclear programme, and although UN sanctions do not forbid the purchase of Iranian oil, the US 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.

Two Indian industry sources said on Wednesday that National Iranian Oil Co (NIOC) 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 is in place for so many years."

The source added, "How can India unilaterally decide to halt it without any alternative mechanism?"

Iran's central bank requested a meeting with its Indian counterpart, the Reserve Bank of India (RBI) said on Wednesday.

"The central bank of Iran has sought a meeting with the RBI," the spokesperson said. "No date has been fixed yet."

An oil industry source, who will take part in the meeting, said the discussion between Iranian and Indian central bank officials will take place on Friday in India's financial capital of 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"

Indian analysts said the oil dispute was due to the pressure from the US on the international community to stop dealing with Tehran to force the Islamic Republic to abandon its nuclear programme.

Tehran says it pursues only peaceful goals and is not trying to build a nuclear bomb.

"It's basically straight-forward American pressure," said Siddharth Varadarajan, strategic affairs editor at the Hindu newspaper, adding that Chinese and Russia companies could benefit if India ceased to trade with Iran.

US President Barack Obama visited India last month and promised to help New Delhi grow its global role, including by supporting its bid for a permanent UN Security Council seat.

"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.

However, India would not want to see ties fray with Tehran, which it sees as an ally in stabilising Afghanistan after US troops leave in 2014. It is also sensitive to internal criticism that the decision was taken due to American pressure.

Sanctions mean Iran will find it tough to find an alternative buyer for oil, its major source of revenue. India faces the prospect of a rising import bill as it seeks to replace Iranian oil, which amounts to nearly 13 percent of its overall crude imports.

Kumar said: "Indian refiners will continue to operate their units at high utilisation rates to meet the domestic demand, which means they will have to source crude from alternative avenues."

"This may lead India having to pay a premium for the crude oil it procures."

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SCS 9 years ago

After centuries of foreign oppression India still pow wows to Western Powers. It is about time they broke free of these chains and use their own brains to lead their countries masses to a better way of life.

HeckSpawn 9 years ago

"However, India would not want to see ties fray with Tehran, which it sees as an ally in stabilising Afghanistan after US troops leave in 2014. It is also sensitive to internal criticism that the decision was taken due to American pressure.."

How can Iran be seen as a stabilizing factor in Afghanistan when it's their desire to destabilize the entire region? EID parts have been recovered that show they were manufactured in Iran. Who is encouraging "jihad" against the "unbelievers"?

Who needs India more than India needs them?

Amitabha 9 years ago

@ HeckSpawn - "How can Iran be seen as a stabilizing factor in Afghanistan when it's their desire to destabilize the entire region?" - I do not know whether you understand the politics of the region...US / NATO earlier said that Saddam had WMD ....what happened to that? Now they say Iran is planning to have a nuclear bomb... how do you know that is not propaganda ? Do you understand the geo-political reality and relations of Saudi & Iran....? India should balance its own requirement with Iran and not take decisions under pressure from US. "Jihad against non-believers" is actively professed in Pakistan....what about it?

Ankit Kumar 9 years ago

Its disgusting how India is kowtowing to the US and hurting its own interests to please uncle Sam.

This will lead to sharp increase in oil and diesel prices in India which in turn will lead to inflation and higher trasnportation costs hurting the economy and the common people.

India has been pro-US mostly but by these antics, anti-American sentiment is bound to increase and then don't be surprised when American wonders why Indians have suddently become anti-American.

Ben 9 years ago

I suppose India was promised more support in building nuclear plants that will help them reduce the need for Petrol. They are also siding with GCC countries and they will get all the petrol they want. The big hit will be on their exports to Iran. China will take over that business as they are less inclined to follow US policies.

UK 9 years ago

It is sad India does not have any foreign policy of it's own, other than just doing what US instructs. The worst thing is, US policies are always aimed at achieving it's own selfish goals. On terror, India expectes US to contain Pak, but it is very clear US will look the other way if Pak fiddles in Kashmir, as long it stays clear in Afghanistan. It seems that our home minister, (I am ashamed to admit it) P Chidambaram had to "beg" US (courtesy - wikieleaks)to allow India access to Hedley, the master mind behind Mumbai attacks. I hope our leaders wake up to the harsh realities and do things which are India's interest and not just toe US line. Otherwise our leaders will make us pay a heavy price like Nehru's Chinese blunder

Raju 9 years ago

I am proud as an Indian. However, I am ashamed to see our politicians dancing to US tunes which are cunningly composed to safeguard their interests.