India to pay Iran in rupee, euro etc for oil

New Delhi: Four months after the RBI scrapped a long-standing payment mechanism, India has decided to use multiple currencies, including the rupee, to pay for crude oil imported from Iran.

Besides the rupee, the euro would be used to pay for a part of the 12 million barrels of oil imported from Iran every month. Also, some payments would be routed through countries like Turkey, sources privy to the development said.

"The Finance Ministry is preparing a note for the Cabinet for payments for Iranian oil in currencies including the rupee," he said.

Under the proposal, National Iranian Oil Co (NIOC) will open rupee account with Indian banks and can use the money to purchase non-strategic items like railway imports and buying commodities.

It cannot use the money to invest in India or buy shares or companies, but the same can be used for buying government securities, they said.

The ministry is preparing a list of what Iran can do with the money and what it cannot.

Sources said the Reserve Bank of India, which had in December last year discontinued a long-standing mechanism of payment through central banks, had previously opposed payments for Iranian oil in the rupee, but has now relented.

India had in February started making euro payments through an Iranian bank based in Germany. But under US pressure, Germany soon stopped accepting money from India for onward transfer to Hamburg-based EIH Bank.

Alternate mechanisms like paying through Dubai or Turkey-based banks was explored. There are also avenues to make euro payments through a European Union nation.

India imports 12 million barrels of crude oil every month from Iran, which is the nation's second-largest supplier after Saudi Arabia.

The problem began after the RBI on December 23 did away with the Asian Clearing Union (ACU) mechanism for paying for Iranian crude oil imports, which make up for 12 per cent of the nation's oil needs.

In February, it began clearing past dues for Iranian oil imports by making euro payments through German-based Europisch-Iranische Handelsbank AG (EIH Bank).

But EIH, which is owned by Iran, is a banned entity in the US and Washington persuaded Germany to stop payments.

About 1.5 billion euro had been paid through EIH when Germany refused to accept any further payments for the purpose.

Sources said oil supplies from Iran have, however, not been affected and the Persian Gulf nation continues to sell oil on credit backed by corporate guarantees.