Iran has asked India to pay for oil partly in yen as the two nations seek an agreement on how to maintain trade amid tightening global sanctions, according to three people with knowledge of the matter.
At talks in Tehran last week,India proposed to pay its second-biggest oil supplier in rupees through a bank account in the South Asian nation, said the people, declining to be identified because the information is confidential. Iranian officials sought partial payment in yen because they’re concerned that they may not get sufficient value from the rupee, which isn’t fully convertible, according to thepeople.
The nations have struggled to preserve $9.5 billion in annual crude trade after the Reserve Bank of India dismantled a mechanism usedto settle payments in euros and dollars in December 2010. Transactions are currently routed through Turkiye Halk Bankasi AS (HALKB) , based in Ankara, which has told Indian refiners it may no longer be able to act as an intermediary, four people with knowledge of the mattersaid Jan. 10.
European Union foreign ministers agreed to ban oil imports from Iran starting July 1 as part of measures to ratchet up the pressure on the Persian Gulf nation’s nuclear program, Dutch Foreign Minister Uri Rosenthal said in Brussels today.
Iran is already under four rounds of UN Security Council sanctions over its nuclear program. The U.S. and its allies say they suspect the program is a cover for developing atomic weapons, a charge Iran has repeatedly denied, maintaining it is for civilian purposes.
Refiner Shares
Shares of Indian buyers of Iranian oil rose in Mumbai trading. Mangalore Refinery& Petrochemicals Ltd. , Iran’s biggest Indian customer, rose 2.1 percent, while EssarOil Ltd. (ESOIL) climbed 2.9 percent and Hindustan Petroleum Corp. gained 0.7 percent.
“This issue has been a concern for investors because it can distort the market for oil and affect these companies if they have to get oil from elsewhere,” Jagdish Meghnani, an energy analystat Emkay Global Financial Services Ltd. in Mumbai, saidby telephone today. “Any sign of a resolution between the countries will help the shares.”
The Indian rupee has fallen 8.9 percent in the past 12 months, the most among major Asian currencies, whileJapan’s yen has strengthened 7.4 percent in the period, making it the best- performing currency inthe region, according to datacompiled by Bloomberg.
Exemption Request
India is exploring how it could pay Iran in yen, although a plan hasn’t been decided, the people said.
Japan asked the U.S. administration for an exemption from a law that would punish banks doing business with Iran and won aU.S. pledge to implement the measure “cautiously,” Foreign Minister Koichiro Gemba said Jan. 20.
The Persian Gulf nation is studying the option of opening an account in an Indian bank, which can be used by refiners to deposit payments in rupees and fundits own imports from the South Asian country, they said.
India’s central bank needs togive its approval for Iran to open a local account, the people said. The Reserve Bank of India is considering options to solve the payments issue over Iranianoil, Deputy Governor K.C. Chakrabarty said on Jan. 20.
The Gulf nation is concerned that India’s entire crude oil bill can’t be paid through exports to Iran, the people said. Iran’s imports from India are worth about $2.5 billion a year, while its annual oil sales to the South Asian nation are valued at about $9.5 billion, the peoplesaid.
Currency Swap
Iran also wants India to invest in non-strategic infrastructure projects in return for crude supplies, the people said.
Last month, Japan agreed to make $15 billion available to India in a currency swap arrangement as Europe ’s deepening debt crisis threatened to curtail developing Asia ’s access to dollar funding. Japanese Prime Minister Yoshihiko Noda renewed a bilateral swap agreement with Indian Prime Minister Manmohan Singh in New Delhi on Dec. 28.The two nations signed a $3billion accord in June 2008 that had expired.
The rupee gained 0.5 percent to 50.0825 a dollar at the 5 p.m. close in Mumbai,according to data compiled by Bloomberg. The yen gained 0.1 percent to 76.91.
Singh discussed alternative financial conduits with Russian officials during his visit to Moscow in December. India, which got 11 percent of its crude imports from Iranlast year, is exploring the option of making payments for Iranian crude through Russia ’s Gazprombank OJSC (GZPR) , though no deal has been reached, three people with knowledge of the talks said Jan. 9.
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