India looks to raise oil imports from Iran as sanctions lifted

However, India will have to clear past oil dues of $5.8 million

With crippling international sanctions against Iran ending, India is looking to increase crude oil imports from the Persian Gulf nation and get oilfield contracts but faces an immediate $5.8 billion payout in past oil dues.

Under pressure from US and other western powers, India had relegated its second biggest oil suppliers by cutting down purchases from 21.2 million tons in 2009-10 to 11 million tons in 2013-14. Imports have been of that order in last three years.

Now with the lifting of sanctions, Indian refiners are looking at raising import volumes.

"Iran offers the best terms of oil sales. They give us 90 day credit i.e., payments have to be made after 90 days of purchase. This compares to a maximum of 30 day credit period by other sellers. Certainly, we will look for unrestricted imports from Iran," said a top official at a PSU refiner.

Mangalore Refinery and Petrochemicals Ltd (MRPL) and Essar Oil Ltd are the two main buyers of Iranian crude, importing some 10 million tons oil every year between them. Indian Oil Corp (IOC) buys a small volume.

Reliance Industries was a big buyer of Iranian oil but stopped imports in 2010 as it increased export of fuel to US. RIL in 2009 bought about 4.5-5 million tons of oil from Iran.

Iran also offers the freight advantage of being very near to west coast of India, the official said adding Hindustan Petroleum Corp Ltd (HPCL) and Bhart Petroleum Corp Ltd (BPCL), who have refineries in Mumbai, too may look at buying Iranian oil.

An oil ministry official said lifting of sanctions would also mean oil refiners will have to clear $5.8 billion in past dues on purchase of Iranian oil.

Since February 2013, Indian refiners like Essar Oil and MRPL have been paying 45% of their import bill in rupees to UCO Bank account of Iranian oil company. The remaining has been accumulating, pending finalisation of a payment mechanism.

With the lifting of sanctions, the payment channels will reopen and Iran will seek the pending $5.8 billion in hard US dollar or Euro, he said.

The official said the government expects that payment channels to open soon and Iran making a demand for clearing of past dues.

After the lifting of sanctions, India will also seek from Iran rights to develop ONGC-discovered Farzad-B gas field in the Persian Gulf.

Indian firms have so far shied away from investing in Iran for the fear of being sanctioned by the US and Europe. The same was deterring New Delhi from claiming rights to invest nearly $7 billion in the biggest gas discovery ever made by an Indian firm abroad.

But after the lifting of sanctions, India is making a renewed pitch for rights to develop 12.8 Trillion cubic feet of gas reserves ONGC Videsh Ltd had found in 2008.