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India and Iran oil payment impasse still unresolved

NEW DELHI/TEHRAN (Reuters) - The oil trade settlement impasse between Iran and India remained unresolved on Friday, with Iran reportedly saying it had been settled but several Indian sources saying that talks would continue.

A worker walks amid facilities at phases 2-3 of the South Pars gas field, are illuminated at night in Assaluyeh on Iran's Persian Gulf coast May 27, 2006.REUTERS/Morteza Nikoubazl

Central bank officials from Iran and India met in Mumbai on Friday in an effort to keep their $12 billion in oil trade running, and forcing New Delhi to strike a delicate balance between its energy needs and its global diplomatic interests.

The Reserve Bank of India (RBI) did not comment other than to say that it had met with Iranian counterparts at a technical level to discuss ways to facilitate future transactions.

But Iran’s deputy oil minister, Ahmad Khaledi, was quoted as saying by Iran’s semi-official Fars news agency: “By changing the currency for oil transaction between Iran and India the problem was solved.”

Several Indian sources said work towards a solution was continuing.

For a graphic on suppliers to India’s Essar Oil


The RBI said last week that oil trade payments to Iran could no longer be settled using a long-standing clearinghouse system run by regional central banks, and Tehran has refused to sell oil outside the old set-up. This week, the RBI extended the move to apply to all current account transactions.

The White House, which wants governments to stop dealing with Iran because of its nuclear programme, praised the move, which came less than two months after President Barack Obama’s trip to India on which he pledged to help boost New Delhi’s global role.

“The issue has not been resolved at today’s meeting. Views of all stakeholders will be taken into account, we are hopeful that it will be resolved shortly,” an Indian industry source said.

India owes Iran 1 billion euros currently and transactions between the two countries pending until two days ago were cleared through the existing mechanism, a source familiar with the matter said.

Indian officials and traders had been hopeful of a quick resolution to the payments row that could have disrupted about 13 percent of its oil imports and leave refiners scrambling for expensive alternative sources of crude.

Importers of Iranian crude include state-run Hindustan Petroleum Corp Ltd, Indian Oil Corp and Mangalore Refinery and Petrochemicals Ltd and privately-run Essar Oil.

U.N. sanctions on Iran do not cover oil sales.


In a solution under discussion, banks and oil companies would put in place an alternative means of settlement for India’s oil purchases from Iran, a person familiar with the matter said.

South Korea pays for Iranian crude using the won.

“In order to not allow Americans and Europeans to create any problem, we said let’s do our business in other currencies like (Emirate) dirham or yen,” Iran’s Khaledi was quoted as saying.

An economy growing at about 9 percent a year has made India the world’s fourth-largest importer of crude. Iran is its second largest supplier after Saudi Arabia.

Indian oil importers get 90 days credit for payment so they are covered for old transactions, but future shipments would be in jeopardy if the matter had not been resolved.

India buys about 400,000 barrels per day of Iranian crude, settling payments through the Asian Clearing Union, a system created in the 1970s by central banks in South Asia and Iran to clear trade payments between them.

Critics say the scheme is opaque to the monitoring of flows into Iranian organisations against which the United States has sanctions, as settlements are made on a net basis every two months.

Suspending Iranian imports when global crude prices are at near two-year highs and when Indian inflation is uncomfortably high would be costly for India.

India and Iran have long-standing ties but analysts say irritants and a new strategic thinking are prompting New Delhi to adopt a more nuanced and assertive policy.

New Delhi’s interests are increasingly tied with the United States, and it is also mindful of Arab concerns over Iran’s nuclear ambitions.

“When it comes to Iran, India can ignore pressure from the U.S. and noises from Israel, but it cannot ignore concerns from the Arab countries,” said P.R. Kumaraswamy, head of West Asian studies at New Delhi’s Jawaharlal Nehru University.

“In a very subtle way, India is sending a message that its closeness with Iran will not affect relations with other Middle Eastern countries.”

Additional reporting by Prashant Mehra and Swati Pandey in Mumbai; Writing by C.J. Kuncheria; Editing by Tony Munroe and Alex Richardson