India on Standby to Settle Oil Debts to Iran

The Indian government has asked its refineries to prepare euro and dollar reserves to settle a $6.5 billion oil debt to Iran. Reuters reported on Tuesday, June 30, that the Indian government, considering the likelihood of a comprehensive nuclear agreement between Iran and six world powers and Tehran's request for settling its oil debts, has instructed its refineries to gradually convert their rupees into dollars and euros to avoid currency liquidity shortages in the country, enabling them to settle the $6.5 billion debt if Iran requests it. After Western sanctions, Iran and India had agreed that 55% of Iran's oil payments would be settled through Turkey's Halk Bank, with the remainder deposited in rupees to UCO Bank in India for Iran to use for importing Indian goods. However, since April 2013, Halk Bank has avoided continuing the transfer of Iran's oil export payments to India due to new U.S. sanctions, resulting in a backlog of Iranian oil payments to Indian refineries and a lack of payment mechanisms. Since the interim nuclear agreement was reached in December 2013, India has released $3 billion of Iran's blocked oil assets multiple times based on the nuclear agreement. However, $6.5 billion of Iran's oil debts remain blocked in India. According to U.S. sanctions, Iran's customers can only deposit payments for Iranian oil in local currency and in a bank in that country, and Iran can only use these amounts for purchasing permitted goods from that country. Currently, with the increasing likelihood of a final nuclear agreement between Iran and the P5+1 group, the Indian Ministry of Petroleum sent a letter to its refineries 20 days ago, indicating that Iran may request the settlement of its debts. In this letter, a copy of which was obtained by Reuters, the Indian Ministry of Petroleum requested its refineries that purchase Iranian oil to procure foreign currency through forex in cash markets to avoid a shortage of dollars and euros in the country. This letter was sent to five refineries: Oil India, Mangalore, Essar, Hindustan Petroleum, and HPCL. The Indian government has asked the refineries to make their arrangements and wait for the central bank's permission to make payments to Iran. According to the letter from the Indian Ministry of Petroleum, payments could be made in one or several installments over a few weeks, depending on the agreements made between Iran and the refineries. Reuters also reported that two Indian refineries have approached the central bank to open foreign currency accounts. India's oil imports from Iran increased by about 66% last month compared to May 2014. On Monday, June 29, India extended its agreement with two Iranian insurance companies for tankers anchoring in Indian ports for another year. In the absence of Western companies and due to sanctions, Iranian companies Kish Club and Qeshm International Trust Alliance are insuring Iranian oil shipments to India.