Iran warns to stop oil supply from Aug if dues not cleared

Coinciding with US Secretary of State Hillary Clinton's India visit, Iran today issued a new warning that it will halt crude oil supplies to India from August unless a mechanism is found to clear past dues.

India owes over USD 5 billion to its second largest crude oil supplier after Saudi Arabia, and is hoping an alternative to pay for 12% of its import will be found soon.

"If the Iranian side feels it cannot receive the money for its exported oil punctually and under desirable conditions, it will reconsider" its crude exports to India, Iranian foreign ministry spokesman Ramin Mehmanparast was quoted by AFP as saying at his weekly press conference in Tehran.

Officials at the Oil Ministry said past payments will be cleared the day Finance Ministry and the Reserve Bank of India agree to conduit and currency for routing the payments.

"The matter is pending with the Department of Economic Affairs and we hope they will be able to find a solution at the earliest," Minister of State for Petroleum and Natural Gas R P N Singh told PTI in New Delhi.

Iran has been supplying some 400,000 barrels a day of crude to India on credit since late December last year when RBI scrapped a long-standing mechanism to pay for import from the Persian Gulf nation using a clearing house system run by regional central banks.

On June 27, National Iranian Oil Co (NIOC) had written to refiners like Mangalore Refinery and Petrochemicals Ltd and Essar Oil, who are the principal buyers of Iranian crude, demanding that a mechanism be put in place to pay for its oil supplies, failing which supplies will be stopped from August.

"In between we were able to make some payments via Germany... the outstanding has shot past USD 5 billion," Singh said, adding India cannot replace its second largest supplier of crude oil overnight.

Some in the government did not see much in the new ultimatum saying Iran was making noise because Clinton was in New Delhi.

The UN sanctioned regime in Iran can ill-afford to lose its second-biggest crude buyer after China, accounting for about 20% of its exports. "Without India, Iran will be left with just China and Korea as buyers," an official said.

As an alternative to Asian Clearing Union (ACU), India is trying to route payments through Turkey and Russia even as oil ministry insists the only option left with New Delhi was to pay in its own currency, rupee.

Korea and China use their own currency to pay for Iranian imports. Iran buys cars and several other commodities including heavy equipment from the two nations from the payments it earns from oil sales.

Earlier this month, Iran said it had "seriously warned" Indian refineries of the possibility of a halt in oil exports because of overdue payments.

And on Monday, Fars news agency, quoting an unnamed Iranian oil official, said crude deliveries to India for August would be withheld unless the payment problems are resolved.

According to AFP, Mehmanparast today said the Iranian side "will review the issue, if there is a problem (over payments), the transaction will be halted. If there are no problems, it will continue."

The US and the European Union have targeted Iran's banking, financial and vital energy sector to halt the Islamic nation's nuclear programme.

Banking channels in Europe and several other countries have shied away from routing the USD 12 billion of payments a year fearing they might be slapped with sanctions.

Officials said the finance ministry has so far not agreed on the banks or the currency to be used for paying for Iranian crude. It is also not in favour of paying in rupee as trade with Iran was heavily loaded in favour of Tehran.

India's exports of items like tea accounts for just a couple of billion dollars while it imports up to USD 12 billion worth of crude oil every year.

The net result will be that Iran will have every month a billion dollar worth of rupee in hand, which finance ministry does not want it to be invested in stocks or buying stake.

MRPL, a unit of state explorer Oil and Natural Gas Corp, is the largest buyer of Iranian crude at 142,000 barrels per day (bpd).

Essar imports 110,000 bpd, state-owned Hindustan Petroleum Corp Ltd 65,000 bpd and Indian Oil Corp 50,000 bpd.

Reliance Industries has since last year completely stopped using Iranian oil at its twin refineries on the west coast.