New Delhi: India will this week end an 18- month old arrangement of paying for Iranian crude oil imports through a Turkish bank as a new set of US sanctions against the Islamic nation comes into force from February 6.
"For sure we will have to end paying for Iranian imports through third country from February 6," an Oil Ministry official said.
India has been, since July 2011, paying in euros to clear 55 percent of its purchases of Iranian oil through Ankara- based Turkiye Halk Bankasi. Rest of the payments are made in rupees in Kolkata-based Uco Bank.
While the euro payments will stop, India will continue to pay for Iranian imports in rupee, the official said.
The new US Treasury sanctions, which go into effect from February 6, bar banks from transferring Iran's oil revenues from importing nations to Tehran.
This means Iran would be forced to keep its oil revenues in local bank accounts in countries purchasing its oil. It can only use those oil earnings to purchase "permissible" services and goods, such as food, medicine and basic medical equipment, from those oil customers as imports back into the Islamic Republic.
"We have some USD 1.2 billion surplus in the Turkish bank. This will be enough to pay for next two months of crude oil purchase at the agreed rate of paying 55 percent of the USD 1 billion a month of purchase in foreign bank," he said.
After March, India will have to pay for entire crude oil purchase from Iran in rupees. And ways will have to be found on how Tehran can use that revenue either by increasing import of foodgrains or tools and machinery including cars and tractors.
The official said the new sanctions mean that National Iranian Oil Co (NIOC) will have to essentially keep all the revenue it earns from selling oil to Indian refiners in Uco or any other permitted local bank. These can be used for buying permissible goods and services.
This may sound workable but the problem is that Iran's imports from India are just one-fifth of the revenue it earns from sale of oil.
With US sanctions bar sale of any defence or technology intensive equipments, New Delhi has not allowed Iranians to invest in its securities or debt.
About Rs 18,000 crore has already accumulated in NIOC's Uco Bank branch and the Iranian national oil firm does not know how to use it.
Oil imports from Iran are slated to fall to 13-13.5 million tonnes in the current financial year ending March 31, from 17.4 million tonnes in the preceding fiscal.
This may fall drastically in the next fiscal if a solution to the payment problem is not found quickly.
The Official said the aim of February sanctions measure is for Tehran's oil revenues to become largely "shackled" within any country buying oil from Iran.
The sanctions mean Iran's international oil customers -even those with State Department waivers exempting them from US Treasury penalties for purchasing Iranian oil - officially be at risk of being cut off from the US banking system if they allow transfers of Iran's oil revenues back to Tehran's Central Bank.
The US has pressured countries that buy oil from Iran to reduce purchases or face sanctions. India, the second-largest buyer of Iranian oil after China, was among the countries that won a reprieve last month for significantly cutting its imports from Tehran.
Sanctions have been a key part of the US strategy to force Iran to negotiate over its nuclear programme, which the United States and its allies claim is intended for producing nuclear weapons.
Tehran insists its programme is peaceful, intended for medical research and meeting the energy needs of its rising population.