No Easy Answers for India Here

By Zaheer A Saikh

Further to our story on Iran – India Crude Oil Bill Payment issue (dated 18 April 2011 post found at http://www.themixoilandwater.com/2011/04/india-between-dollar-and-rupee.html) the impasse is not over yet. The National Iranian Oil Company (NIOC) through letters sent to Indian refineries has said that it will halt supplies to Indian refineries in August 2011 if the two countries do not find a solution to this impasse (Hindustan Times reports-http://www.hindustantimes.com/Iran-says-could-halt-oil-supplies-to-India-in-Aug-sources/H1-Article1-716106.aspx).

Iran is second biggest source for India for its crude oil supplies after Saudi Arabia, meeting 12% of its crude oil demands.

The heavy trade imbalance between these two nations which is dominated by hydrocarbon exports to India (1:12) makes the Rupee payment to Iran difficult. After US and UN Economic sanctions against Iran for its Nuclear Program, New Delhi is walking a difficult line in balancing both the US and Iran relations. Some of the Indian upstream and downstream companies were black listed earlier by the US Trade Department before they pulled back from the deals (Withdrawal of Reliance Industries a downstream giant from refining capabilities short Iran). Under tremendous US pressure, the Central Bank authorities (Reserve Bank of India) in India stopped the processing of the payments through Asian Clearing Union, originally set up by the United Nations in 1974 to help facilitate trade in South Asia and headquartered in Tehran. The temporary solution of payments through German EIH Bank is also gone as EIH comes under EU sanctions.

As much as Iran, India needs to find an immediate solution to this problem to maintain the ever growing demand of oil in the country. Undeterred by the recent Arab Spring the government in Iran is not halting or promising to stop its nuclear program. This means there will be more pressure on Iran from the US forcing its allies to stop making high economic ties with it. Payments through Turkish Banks is an option however it is not sure if Iran can accept $12 billion in Turkish Currency. In any case there is not an easy solution to this quagmire for India. Next two months will be interesting to watch out.