Iran threatens to block crude oil supply to India on payment dispute

02 July 2011 | 14:54 Code : 14255 Latest Headlines
 The Economic Times-- Iran has threatened to stop crude oil supplies to India from August if New Delhi does not resolve a sevenmonth old payment dispute . Iran is the second largest crude supplier to the country after Saudi Arabia and accounts for about 12% of India's annual oil needs. 


State-run National Iranian Oil Company has sent letters to Mangalore Refinery & Petrochemicals and Essar Oilsaying it would be forced to halt supplies from next month if the two countries fail to evolve a mechanism for future payments, executives at the refining firms said on condition of anonymity. 

The two refiners are among the principal buyers of Iranian crude. But a spokeswoman for Indian Oil Corporation, the country's biggest refiner, said her company has not received any letter from the Iranian state oil firm. 

Asenior official with the ministry of petroleum & natural gas also denied any communication of such a nature from Iran. 

"The situation is grim, but Iran has not threatened to stop crude supply from August," the official said. The two countries have been trying to resolve an impasse over crude payments since December when the Reserve Bank of India clamped down on a regional clearinghouse, the Asian Clearing Union, which involved the Iranian central bank. The Indian companies used the clearinghouse as the main conduit to pay for oil consignments from Iran. 

Finance ministry officials said the government was yet to find an alternative arrangement for making the payments. 

"The option of making payments in rupee is not acceptable to Iran with the existing restrictions," a finance ministry official said. "We are looking at other possible options." Besides Mangalore Refinery & Petrochemicals and Essar Oil, Hindustan Petroleum Corporation is the other main importer of Iranian crude. India imports 21 million tonnes (mt) of crude from Iran every year. 

In April, Hindustan Petroleum had said that it has finalised a contract with Iran for supply of 3.5mt of crude for 2011-12. 

Mangalore Refinery & Petrochemicals, a subsidiary of ONGC , is the biggest consumer of Iranian crude in the country. The company, which has a 12mt capacity refinery on the south-west coast, depends on Iranian crude for more than half of its annual processing capacity. "We can't afford to stop import of Iranian crude," a senior company executive said. 

In 2008-09, Mangalore Refinery & Petrochemicals imported 8mt of crude from Iran. But the following year, it was reduced to 1mt. 

Essar Oil, a private firm, buys about 5mt of crude from Iran annually. An Essar spokesman refused comment for this story. Reliance Industries Limited is the only major Indian refiner, which does not import crude from Iran. 

Indian Oil Corporation and Bharat Petroleum Corporation import less than 1mt of crude from Iran. Senior government officials say purchase of crude oil from Iran is permitted under the United Nations sanctions but the US has been putting pressure on countries to stop oil transactions with Iran. "We had been able to clear some backlog though Euro payment, but due to the US pressure that system was abandoned by the host bank," one official said. 

In February, payment for Iranian crude import was routed through German bank EIH . 

The RBI discontinued the settlement of crude payment through the Asian Clearing Union under the US pressure, officials said. Established in 1974 as an initiative of the UN Economic and Social Commission for Asia and Pacific, the Asian Clearing Union facilitated payments among member countries for eligible transactions on a multilateral basis.