July 22, 2011

India for early solution to Iran oil crisis

They (Iran) know it is not a question of money when it comes to India but how to route it. Any new buyer will face the same predicament

NEW DELHI: Iran on Tuesday again threatened to cut oil supplies to India from next month if New Delhi failed to route payments to clear a pending bill of around $5 billion by that time.

Agencies quoted the semi-official Iranian Fars news agency as saying that an unidentified senior oil ministry official of that country had threatened that Tehran will not authorise shipments of crude to India from August 1 if dues were not cleared.

Minister of state for petroleum R P N Singh, however, said the government was hopeful of an early resolution and the matter was being deliberated by the Department of Economic Affairs. "It is (the payments issue) a subject of the Department of Economic Affairs. It is deliberating on the issue. We are hopeful of a solution to India's energy needs," he told TOI. Other government officials played down the threat, describing it as geopolitical shadow-boxing by Tehran against US since it coincides with secretary of state Hillary Clinton's visit to India.


India buys 18 milion tonnes of crude a year, or 12% of imports, from Iran. Officials said Iran would be stranded with oil if it stopped supplies to India. "Where will it find buyers overnight for such a huge quantity. Even China's offtake has shown signs of cooling due to slowing pace of its economy. They (Iran) know it is not a question of money when it comes to India but how to route it. Any new buyer will face the same predicament," a senior official said.

India's oil imports form Iran has been facing payments crisis after the RBI scrapped a regional clearing system in December.

India made some payments, estimated at $2 billion or so, through Germany's central bank but even that arrangement was scrapped in April due to US sanctions.

The government's efforts to route payments through West Asian banks too have come a cropper. Plans to pay in rupee has also not progressed due to concerns that Iran may invest the money in India which will flush the financial system with funds at a time when the RBI is trying to suck out liquidity to tame inflation.

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