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India set to pay for Iranian oil using rupees from November

21 September 2018

India will settle payments for Iranian oil using rupees through local banks starting in November as US sanctions will make it hard to settle trades through European banks, two industry sources said on Thursday.

After a meeting with India's most senior politicians earlier this month, U.S. Secretary of State Mike Pompeo said that the United States would consider waivers "where appropriate", but reiterated that the United States eventually expects to bring Iranian oil exports to zero. Payment for oil bought in September would be due in November as Iran provides a 60 days credit period. During the previous sanctions regime, India adopted a barter-like scheme to buy oil from Iran while the Middle Eastern country used rupees to import goods from India. During 2011-2015, India also routed a portion of the payment to Iranian oil companies through Turkey's Halk Bank.

As the United States sanctions on Iran are set to take into effect in November, the Indian government has been ordered to wind down its purchases of Iranian oil.

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Iran is an important supplier of oil to Japan, accounting for about 5 percent of its crude imports, and Japanese refiners, together with the government, will try to maintain its good relationship with the Middle Eastern country, said Tsukioka, adding that the US sanctions will not cause a major impact.

Indian refiners are now using State Bank of India and Germany-based Europaeisch-Iranische Handelsbank AG to buy Iranian oil in euros.

Earlier, India was looking at the possibility of falling back on the rupee-rial arrangement for importing oil from Iran in the wake of United States sanctions.

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India risks being cut off from the U.S. financial system if it continues to maintain financial transactions with Iran without a waiver.

UCO Bank handled oil payments when the first round of sanctions came into effect in 2011.

International Olympic Committee imports oil on behalf of Chennai Petroleum. Much like they did before the Iran nuclear deal was signed in July 2015, India's oil refining companies will pay for Iranian oil in rupees instead of euros and dollars starting 4 November, according to the Economic Times. Iran is India's third-largest oil supplier behind Iraq and Saudi Arabia. India is the second-biggest client of Iran and sources almost one-tenth of its crude supplies from there.

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Besides blocking of banking channels from November, the absence of payment mechanism may pose a challenge to the transportation of the oil as Iranian crude is bought on a CIF basis and shipped on Iranian tankers.

India set to pay for Iranian oil using rupees from November