India will from November not be able to use European banks for making payments for crude oil it buys from Iran as US sanctions against the Persian Gulf nation take effect, senior officials said on Friday.
State Bank of India (SBI), the country's largest lender, has communicated to oil refiners that the euro payment route will be not available after November 3, Indian Oil Corp (IOC) Director (Finance) A K Sharma said.
US President Donald Trump had last month pulled out of a landmark nuclear deal and said sanctions will be re-imposed on Iran within 180 days.
However, it is not "doomsday" for Indian refiners and alternate crude oil sources in the Middle East, US and Russia can be tapped should Iranian supplies dry up due to payment problems, Bharat Petroleum Corp Ltd (BPCL) Director (Finance) R Ramachandran said.
"Once the current payment channel is blocked, supplier (Iran) has to decide if it wants to trade with us in rupee or sell oil on credit in anticipation of channels re-opening in future," Sharma said.
India pays its third largest oil supplier in euros using European banking channels and imports can continue on alternate modes should it be blocked, he said.
Currently, oil firms first transfer funds to SBI, which in turn uses Germany-based Europaeisch-Iranische Handelsbank AG (EIH) to pay in euros to Iran.
During the first round of sanctions in 2012 when European Union joined the US in imposing financial restrictions, India initially used a Turkish bank to pay Iran for the oil it bought but beginning February 2013 paid nearly half of the oil import bill in rupees while keeping the remainder pending till opening of payment routes. It began clearing the dues in 2015 when the restrictions were eased.
Besides, New Delhi sought to get around the restrictions by supplying goods including wheat, soybean meal and consumer products to Iran in exchange for 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.
Ramachandran said while Iran offers an economic advantage because of lower freight for shipping oil, alternatives are available.
"Our refineries are flexible and a large number of options are available (to replace Iranian oil). We have suppliers, the Middle East, US and Russia," he said. "It is not doomsday for us."
Sharma said Iran has to take a call on how supplies are to be made.
On the issue of India seeking a waiver from sanctions, he said it is for the government to decide and he has no comments to offer.
Like last time, India can seek a waiver from US sanctions on condition that it will cut down Iranian imports.
Iran is India's third-largest oil supplier behind Iraq and Saudi Arabia. It supplied 18.4 million tonnes of crude oil during April 2017 and January 2018 (first 10 months of 2017-18 fiscal).
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 subsequent years. In 2013-14 and 2014-15, India bought 11 MT and 10.95 MT, respectively from the country.
Sourcing from Iran increased to 12.7 MT in 2015-16, giving it the sixth spot. In the following year, the Iranian supplies jumped to 27.2 MT to catapult it to the third spot.
Iranian oil is a lucrative buy for refiners as the Persian Gulf nation provides 60 days of credit for purchases, double the amount of time given by other producers.
Following Trump's announcement, companies are not allowed to strike new deals in the Iranian oil and energy sector.
By August, transactions in Iranian government debt or currency and purchases involving the country's automobile sector or Iranian gold and other metals must end. In November, deals involving Iran's oil and energy sector, shipping and ports, and insurance services will be prohibited.