With risks on crude transportation and global prices receding, India would resume its full-fledged oil trade with Iran, government officials clued into the developments told Financial Chronicle on Saturday.
As direct fallout of the nuclear pact, India will be able to immediately resume dollar payments against crude imports to Iran via US and European banks.
In addition, the government will consider the possibility of upward revision in crude oil imports from Iran to 18 million tonne per annum (mtpa), which prevailed in the
pre-sanctions days, till 2006.
To take the first step towards enhancing business relations with Iran, commerce secretary Rajeev Kher was scheduled to reach Tehran late on Sunday. He will hold discussions with the Iran leadership on the road map towards enhancing trade and investment engagement between the two sides.
After EU unilaterally imposed the sanctions, US oil imports from Iran were scaled down to just about 11 mtpa. Though India did not recognise the unilateral sanctions without the mandate of UN, India were under pressure from West European and US partners not to increase oil imports from Iran.
Until Friday, India had not considered the possibility of enhanced oil and non-oil imports from Iran.
Since Iran was considered a trusted ally, India would now like to extend the bilateral relations further to investment and economic relations.
In the meantime, a section of the government is pushing for continued non-dollar trade with Tehran that include barter arrangement, i.e. oil-for-food as part of its strategy to keep its options wide open. This is expected to keep Indias offensive and defensive energy interests intact even if a final nuclear agreement gets derailed or delayed between Iran, US and EU, an official not willing to be quoted told FC.
The final nuclear deal is expected to be concluded in June this year while sanctions against Iran are to be lifted gradually there after.
The continued rupee payment system that some strategists are pushing for with Iran on oil imports would be akin to the arrangement that China has with Russia on oil trade where payments are settled in rubles and renminbi.
Following the sanctions on Iran, it became difficult for countries like India to complete transactions with Iranian entities in international currencies such as dollar and euro.
In a bid to get over this tricky issue, India and Iran had put in place a payment mechanism through Turkish Halk Bank and the Kolkata-based Uco Bank.
After having adjusted for food exports India has till now paid in rupees for oil through Uco Bank.
As on February 28 this year, India had to make payments worth $5.9 billion while it had deposited $2.8 billion by March 14, 2015.
In case, the Iranian government now insists on dollar payments, then India will have to do that. But, indications are that Iran may like to continue with the present rupee-rial trade settlement at least for the next six months, the official quoted above added.
Following the Iran-US-EU nuclear framework agreement, Brent crude prices fell by 3.8 per cent on Thursday to $54.95 a barrel. EU and US had earlier restricted oil exports from Iran to 1.1 million barrels per day.
The easing of the stand between the West and Iran over the latters nuclear programme is good for a country like India that imports about 75 per cent of its crude oil requirements. Iran brings advantage to India both in terms of transportation and quality of oil, said a former planning commission member.
The NDA government also sees a distinct possibility of filling its three under-construction caverns with Iranian oil to maintain strategic reserves at Vishakapatnam in Andhra Pradesh and Padur and Mangalore in Karnataka. As on date, Iran has 30 million barrels per day oil in storage.
India had explored crude oil imports from distant markets in Africa and Latin America to negate the possible oil shocks to Indian economy in the event of a conflict in the Persian Gulf region.
By MyDigitalfc
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