Sanctions on IRAN

State-run refineries could run low on their stock of crude next month as the RBI move to curb payment facilities with Iran has put a question mark over supply of some 10 million barrels of oil from the Persian Gulf nation contracted for January.

Realizing the gravity of the situation, top RBI officials will meet their Iranian counterparts shortly in Mumbai to finalize a panel of banks through which payments can be made. Till 2008, payments under the ACU (Asian Clearing Union) mechanism was done in Greenbacks, but after the US imposed sanctions against Iran, the currency shifted to the euro.

Oil ministry officials said the RBI move had taken them by surprise and a replacement for the January contract may not be easy to find or will come at a huge cost, which will negatively impact the oil firms. Iran accounts for some 12% of India's oil needs and a sudden snapping of a system in vogue from 1976 could spell doom if an alternative is not found quickly, one official said.

UN sanctions do not forbid buying Iranian oil and recently the European Central Bank (ECB) asked the RBI and other central banks of ACU to provide certificates that the euro being used to import products are not on US sanctions list. Sources said while certification for crude oil imports was easy to provide and track, the RBI chose to scrap the entire system itself.

In the absence of ACU, Iran and its crude supplier National Iranian Oil Co (NIOC) are jittery over sales without being backed by the sovereign guarantee of the central bank. Also, oil firms will have to find an alternative European bank, which can accept payments on behalf of NIOC.

India imported 21.3 million tonnes of crude oil from Iran in 2009-10 and this year imports are expected to be around 18 million tonnes as Reliance Industries has totally stopped using crude from that country. MRPL is the biggest importer of Iranian crude oil with 7.1 million tonnes of contracted quantity. Mumbaibased Essar Oil imports roughly 3 million barrels per month (5-5 .5 million tonnes a year), IndianOil 3.5 million tonnes and Hindustan Petroleum Corp about 3 million tonnes.