BPCL not to buy Iran oil till payment issue is resolved

State-run Bharat Petroleum Corporation (BPCL) has suspended crude oil purchase from Iran after Turkey refused to route its payments, sending India to scramble for alternative methods to pay its second largest oil supplier.

BPCL, which last year began buying 20,000 barrels a day of crude oil from Iran, was last month refused permission by Turkey's state-controlled Halkbank to open an account similar to ones Indian refiners like Essar Oil and Mangalore Refinery use for paying to Iran.

Highly placed sources said BPCL, which could not pay $107 million to Iran on due date of December 12, has decided to stop buying from Tehran till a payment mechanism is finalised.

BPCL would make up for the shortfall from countries such as Saudi Arabia.

Indian refiners began using Halkbank to pay Iran in July last year after the Reserve Bank of India (RBI) scrapped a long-standing mechanism of payment through central banks.

New Delhi fears Turkey may come under pressure to halt the conduit after US imposed fresh round of sanctions against Iran and European Union was slated to announce tough measures in this regard on its own at the end of the month.

Sources said refiners and oil ministry officials today discussed alternative methods to pay for Iranian oil imports.

An Indian delegation comprising of officials from RBI, Oil Ministry, Finance Ministry and refiners would visit Tehran on January 16 to discuss alternative modes and routes.

Refiners have already begun talks with alternative suppliers to slowly replace some quantity of the 3,70,000 barrels a day of oil they buy from Iran.

MRPL, the biggest buyer of Iranian oil at 1,42,000 bpd, has not yet contracted any supplies for the year beginning April.

India is Iran's second-largest crude buyer, taking about 3,52,000 bpd, or 13.5% of Iran's 2.6 million bpd of exports. New Delhi currently pays the world's fourth largest oil producer about $1 billion every month through Turkey.

Sources said possibility of paying Iran in rupee or through yen payments would be discussed in the January 16 meeting.

Routing payments through Russia was discussed during the visit of Prime Minister Manmohan Singh to Moscow last month. However, Russia has so far not agreed to route payments for India due to the "complexities" involved.

US President Barack Obama signed a Bill into law late last month empowering US authorities to impose penalties on foreign banks dealing with the Central Bank of Iran to settle oil import payments.

National Security Adviser Shivshankar Menon last week discussed alternative payment routes with officials from the ministries of finance, petroleum and external affairs.