India to pay for Iranian crude oil in rupee

National Iranian Oil Co to open rupee account with Indian banks

After having explored various options to make payments and having run out of them, India is understood to have decided to pay Iran for the crude oil supplied by it in rupee terms.

After discussions between the Finance Ministry and the Petroleum and Natural Gas Ministry, it has been decided that the Ministry will seek the note of the Union Cabinet to switch over to the rupee payment system for the Iranian crude, officials in the Petroleum Ministry said.

Under the newly floated but yet to be approved proposal, National Iranian Oil Co (NIOC) will open rupee account with Indian banks and could use the money to purchase non-strategic items such as railway imports and buy commodities. It will not be able to use the money to invest in India or for buying shares or companies. The Finance Ministry will prepare and submit a list of do's and don'ts for Iranian authorities from the money it gets as part of the crude oil payments.

The official said the Reserve Bank of India, which, in December last year, discontinued a long-standing mechanism of payment through central banks, previously opposed payments for Iranian oil in rupee but has now relented. In February, India started making euro payments through an Iranian bank based in Germany. But that had to be stopped soon after Germany came under pressure from the United States to put an end to this practice.

The government also explored the option of Indian oil firms opening accounts in Dubai-based Noor Islamic Bank for direct transfer of money to Iran. But the UAE is also learnt to have refused to route payments.

India imports 12 million barrels of crude oil every month from Iran, which is the nation's second-largest supplier, after Saudi Arabia. The problem began after the RBI, on December 23, did away with the Asian Clearing Union (ACU) mechanism for paying for Iranian crude oil imports, which make up for 12 per cent of the nation's oil needs.

In February, it began clearing past dues for Iranian oil imports by making euro payments through the German-based Europisch-Iranische Handelsbank AG (EIH Bank). But EIH, which is owned by Iran, is a banned entity in the U.S., and Washington persuaded Germany to stop payments.

This has resulted in outstanding payment of $2.8 billion as on March-end towards Iran.

source-The Hindu