India and Iran to meet over oil dispute

2010-12-31 10:40

Mumbai - Central bank officials from India and Iran were set to meet on Friday to try to hammer out a deal to keep their oil trade running, with New Delhi aiming to balance its energy needs with its global diplomatic interests.

Indian officials and traders are hopeful of a quick resolution to a payment row that could disrupt about 13% of its oil imports and leave refiners scrambling for expensive alternative sources of crude.

The Reserve Bank of India (RBI) said last week that oil trade payments to Iran could no longer be settled using a long-standing clearinghouse system run by the 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 dealings with Iran because of its nuclear programme, has praised the move, which came less than two months after President Barack Obama's trip to India, where he pledged to help boost New Delhi's global role.

UN sanctions on Iran do not cover oil sales.


India and Iran could agree to settle deals in Iran's rial or another currency such as the Japanese yen, Indian Oil Secretary S Sundareshan suggested on Thursday.

South Korea pays for Iranian crude using the Korean won.

Payments could also be routed through a third-country central or commercial bank.

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

India buys about 400 000 barrels per day of Iranian crude, sending about $12bn a year to Tehran via 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 the US has sanctions against, 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, analysts say.

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, analysts said.

"When it comes to Iran, India can ignore pressure from the US 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," he said.