India set to pay for Iranian oil using rupees

Crude Oil

Crude Oil

India's Chennai Petroleum will also stop processing Iranian crude oil from October to keep its insurance coverage once new sanctions by the sanctions go into effect, three sources familiar with the issue said.

The remaining 45 per cent payment was remitted in rupees in accounts Iranian oil companies had with the UCO Bank.

In May, US President Donald Trump withdrew from a 2015 nuclear accord with Iran and ordered the renewal of US sanctions.

United States sanctions against Iran come into effect from November 4 and will block banking channels.

The US has told India and other countries to cut oil imports from the Gulf nation to "zero" by November 4 or face sanctions.

The official said refiners have booked oil cargoes from Iran for the current month as well as for October.

The United States has demanded that nations cut all their Iranian oil imports when sanctions on the country's petroleum sector over Tehran's nuclear program are re-imposed on November 4.

However, cutting imports to zero from Iran is unlikely because India simply can not switch to more expensive sources of crude oil overnight without adverse short-term effects on its already-widening current account deficit and dramatic adjustments to its refineries, which are calibrated to process Iranian oil.

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India is in touch with both Iran and the USA on the complex issue.

UCO Bank handled oil payments when the first round of sanctions came into effect in 2011.

The rupee can be used by Iran to pay for imports from India.

State-owned refiner Hindustan Petroleum Corp has already halted purchases due to insurance problems, while Bharat Petroleum Corp boosted Iranian purchases earlier this year and expects to sharply cut Iranian flows once the sanctions take effect.

The official said this time around the entire 100 per cent of Iranian oil import bill can be paid in rupees.

A man holds the flags of India and the USA while people take part in the 35th India Day Parade in New York August 16, 2015. In 2013-14 and 2014-15, India bought 11 MT and 10.95 MT, respectively from it. In the following year, the Iranian supplies jumped to 27.2 MT to catapult it to the third spot.

India wants to secure a waiver for imports from the United States, which is why it has significantly reduced its oil purchase from Iran after the latter's ties with the United States soured.

Besides blocking of banking channels from November, the absence of payment mechanism may pose a challenge to the transportation of the oil as Iranian crude is bought on a CIF basis and shipped on Iranian tankers. The liability and costs associated with successful transit are paid by the seller until the goods are received by the buyer.

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