The US decision to restore financial sanctions on Iran will not hamper India’s oil imports from the Islamic Republic as long as European countries don’t follow up, officials said on Wednesday.
India pays its third largest oil supplier in Euros using European banking channels and imports are set to continue unless these are blocked, the officials added.
US President Donald Trump on Tuesday announced that the US will withdraw from the landmark 2015 accord to restrict Iran’s nuclear program and reinstate financial sanctions on the Persian Gulf nation.
Oil prices rebounded to trade at the highest level since 2014 with Brent crude oil peaking 2.5 per cent to USD 76.55, soon after the announcement.
"Immediately there will be no impact but we have to wait and watch how other nations particularly the European block, react," said A K Sharma, Director (Finance) of Indian Oil Corp (IOC), the country's largest oil firm.
If the European Union (EU) were to continue status quo and not re-impose sanctions, Iranian supplies to India will continue unhindered, he said.
But paying Iran for the oil India buys would become difficult in case European countries join the US and impose financial sanctions and block banking channels, he said.
"France, Germany, and the UK regret the US decision to leave the JCPOA," said French President Emmanuel Macron, who personally lobbied Trump to remain in the deal during a state visiting to Washington last month.
JCPOA stands for the Joint Comprehensive Plan of Action (JCPOA), the acronym for the Iran nuclear deal that was signed between Iran and the P5+1 (the five permanent members of the United Nations Security Council - China, France, Russia, the UK, US- plus Germany), and the EU in Vienna on July 14, 2015.
Iran was India’s second biggest supplier of crude oil after Saudi Arabia till 2010-11 but western sanctions over its suspected nuclear programme relegated it to the 7th spot in the following years.
In 2013-14 an 2014-15, India bought 11 MT and 10.95 MT, respectively from it.
Sourcing from Iran increase to a massive 12.7 MT in 2015-16, giving it the sixth spot. In the following year, the Iranian supplies leapfrogged to 27.2 MT to take the third spot.
Iranian oil is a posh buy for refiners as the Persian Gulf nation provides 90 days of credit for purchases, at least thrice the amount of time provided by other providers.
During the first round of sanctions when EU joined the US in imposing financial restrictions, India used a Turkish bank initially to pay Iran for the oil, but shifted to rupees in the beginning of February 2013 keeping the remainder pending opening of payment routes. It began clearing the pending dues in 2015 when the restrictions were eased.
Besides, New Delhi sought to get around the restriction by supplying goods including wheat, soybean meal and consumer products to Iran in exchange of oil.
Back in 2012, EU put restrictions on insurance of Iranian oil and ships carrying them. To get around the problem, Iran supplied oil in its own tankers.
After Trump’s announcement, companies are not allowed to conclude new deals in the Iranian oil and energy sector.
Transactions in Iranian government debt or currency and purchases involving the country’s automobile sector or Iranian gold and other metals must end by August.
In November, contracts involving Iran’s oil and energy sector, shipping and ports, and insurance services will be restricted.