German bank to temporarily process Iran crude payments

In a temporary reprieve, India will pay for the Iranian crude oil in euro through a German bank based in Hamburgh and a permanent solution to the payment issue will be explored at a meeting in Tehran next week.

Iran's national oil company NIOC (National Iranion Oil Company) has a euro account in Europisch-Iranische Handelsbank AG (EIH Bank) in Hamburg, which will process the payments made for Iranian crude by Indian companies.

Oil companies like MRPL, Indian Oil and Essar Oil will make payments to State Bank of India (SBI), whose Frankfurt branch will transfer the money to NIOC's EIH Bank account in Hamburg.

"There has been no disruptions in supply since RBI issued new payment guidelines. A cargo for delivery on 8th and 9th of this month is currently being loaded in Iran and we have no problems sourcing crude from Iran," Petroleum and Natural gas Secretary S Sundaresan said today.

Sundaresan said that a delegation of Indian banks and oil companies, led by a Finance Ministry Additional Secretary will be visiting Tehran on January 14-16 to find a permanent solution to the issue.

The RBI on December 23 said oil and other import payments to Iran will have to be settled outside the existing Asian Clearing Union (ACU) mechanism, which involves the central banks of India, Bangladesh, Maldives, Myanmar, Iran, Pakistan, Bhutan, Nepal and Sri Lanka.

Under the ACU mechanism, imports by the nine nations are settled every two-months with every member paying for imports after netting out its exports among the union.

Till 2008, payments under the ACU mechanism was done in US dollars but after United States imposed sanctions against Iran over its suspected nuclear programme, the currency shifted to Euro.

The latest RBI directive led to oil firms searching for an alternative European bank which can accept payments on behalf of NIOC.

Industry sources said that Iran was ready for rupee payments, but RBI has not agreed to the proposal.

Payments for Iranian crude in Japanese Yen was also not possible as the US sanctions prohibits any freight payment for Iranian crude in Japanese currency.

Besides, the UAE Dirham is also being considered as an alternative currency, but it can also not be a permanent solution as officials in that country strictly monitor the payments routed to Iran and may block the payments under the US pressure.

The only option left remains is the Indian rupee, which would be considered in the Tehran meeting next week, sources said.