The move, that was indirectly aimed at Iran — India’s second-largest crude oil supplier after Saudi Arabia — had left the importers to deal directly with the entities in Iran and without any dealings with RBI or the Iranian central bank.
“Now some Indian importers are looking for a panel of banks for routing the payments,” said one trader, adding that both countries must quickly find a solution to the impasse as a sanctions-hit Tehran and energy-hungry New Delhi need each other.
In reaction to the gravity of the situation, top RBI officials are expected to meet their Iranian counterparts in Mumbai on Friday to finalize a panel of banks through which payments can be made.
Until 2008, payments under the ACU mechanism was done in dollar, but after the US imposed sanctions against Iran, the currency shifted to the euro.
Oil ministry officials said the RBI move had taken them by surprise and a replacement for the January contract may not be easy to find or will come at a huge cost.
According to a Times of India report on Thursday, state-run oil refiners may face a supply shortage in January as the impasse over how the payments will be made has led to a question over the supply of about 10 million barrels of oil contracted for January from Tehran.
However, state-run oil refining companies such as Hindustan Petroleum Corp. and Indian Oil Corp. said they aren’t facing any immediate supply disruptions.
Iran accounts for some 12 percent of India’s oil needs and a sudden snapping of a system in vogue from 1976 could spell doom if an alternative is not found quickly, an official said.
Therefore, the Indian government is now actively exploring alternative methods to process payments, including the commercial bank channels, the official added.
Currently, Iran has four big oil buyers — China, Japan, South Korea and India. Of these, China and Japan follow the European bank channel route. South Korea deals a currency-to-currency route, which is not financially viable for India because of its trade imbalance with Iran.
United Nations’ curbs do not forbid buying oil from Iran. Recently, the European Central Bank asked the RBI and other central banks of ACU to provide certificates that the euro being used to import products are not on US sanctions list.
Sources said while certification for crude oil imports was easy to provide and track, India’s central bank chose to scrap the entire system.
India is a major oil importer, buying crude oil worth $11 billion annually from Iran — about 14 percent of its total crude import bill. The country imported about 426,000 barrels per day from Iran in 2009-10 fiscal.
The ACU is an arrangement where the participants settle payments for intra-regional transactions among member central banks, helping economize the use of foreign exchange and transfer costs. The bloc includes the central banks of India, Bangladesh, the Maldives, Myanmar, Iran, Pakistan, Bhutan, Nepal and Sri Lanka.
