Government begins moves to smoothen Iran oil imports
05 June 2014
In a move that could help India clear its pending oil payments to Iran, the union government is planning to allow the sanction-hit country to use the money to pay for humanitarian goods such as food and medicines bought in other countries, according to a report that comes even as the US has lifted sanctions on Iranian gas for six months.
The finance ministry has asked state-owned UCO Bank, which is the designated go-between for Indo-Iranian oil deals, to put in place the necessary payment arrangements, according to a report in The Hindu citing government sources.
India owes Iran an estimated $3-$4 billion in pending oil payments as it has not been able to transfer the money in dollars or euros for more than a year under the US-led Western sanctions. The sanctions were put in place by the US and the EU over its alleged nuclear weapons programme.
India once enjoyed large supplies of Iranian oil at relatively cheap cost; it does not need much geography to see that transport costs to Indian refineries, particularly in Gujarat, would be lower for Iranian oil than for than Gulf oil. But under the sanctions, India has been forced to buy more expensive oil.
India put in place a rupee payment system for making 45 per cent of oil payments to Iran in Indian rupees in an account in UCO Bank. The amount was used to pay Indian exporters to Iran. But it is the remaining 55 per cent amount held by India in IOU accounts that is bothering Iran.
Since humanitarian goods are not covered by the sanctions either by the UN or the West these can be easily paid for by India if the required processes are put in place. ''We plan to start the process as soon as possible,'' the official cited by The Hindu said.
On pursuing oil and gas exploration opportunity in Iran that was put on hold following the sanctions, the Ministry for Petroleum & Natural Gas has now expressed that India is willing to take up work in the discovered Farsi offshore block, now named Binaloud. This discovery was made by ONGC.
India, however, feels that Iran needs to rework the contract and make it more attractive. ONGC Videsh Ltd is keen to develop the Farzad-B gas find. The gas has been discovered by OVL and its Indian partners.
The gas field is estimated to hold in-place reserves of up to 21.68 trillion cubic feet (Tcf), of which 12.8 Tcf of gas and 212 million barrels of condensate may be recoverable.