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NEW DELHI — India and Iran have resolved a dispute over how it pays for Iranian crude oil with New Delhi agreeing to set up a new mechanism that will route payments through a German bank, a finance ministry official said Friday.
The decision ends a nearly six-week long stalemate that had threatened to disrupt Iranian oil supplies to India. Iran's trade is hampered by a range of international sanctions stemming from its nuclear energy program that the U.S. says is covertly aimed at creating nuclear weapons.
The payments for Iranian crude would be made through Europaeisch-Iranische Handelsbank AG, known as EIH Bank, said the official, speaking on condition of anonymity as he was not authorized to speak to the media.
Iran is India's second largest crude oil supplier after Saudi Arabia and meets more than 12 per cent of its oil needs.
Germany's central bank has indicated EIH can receive euro payments for Iranian oil if the company importing the oil or its bank issues a certificate that the funds wont be used for trade in any commodity affected by European or United Nations sanctions against Iran, the official said.
The disagreement over payments arose after India's central bank said in December that deals with Iran must be settled outside the Asian Clearing Union system, a regional payment arrangement that allowed companies to skirt U.S. and European restrictions on doing business with Iran. The ACU is used by the central banks of member nations — Bangladesh, Bhutan, India, Iran, Nepal, Pakistan, the Maldives, Myanmar and Sri Lanka.
Iran had refused to sell oil under the new rules. Indian media reports had said that New Delhi was under pressure from the United States to reduce its dependence on Iranian oil imports.
Until 2008, payments under the ACU mechanism were made in U.S. dollars, but after Washington imposed sanctions against Iran over its nuclear program, the currency shifted to the euro.
The decision Thursday to end the deadlock came after many weeks of deliberations between India's finance and oil ministry officials and their counterparts from the external affairs ministry and India's national security establishment.
National Iranian Oil Co. has an account with EIH, and Germany's central bank has cleared it for receiving euro payments via the State Bank of India for Iranian crude, the official said.
Indian refiners including the state-owned Indian Oil Corporation Ltd. and others such as Essar Oil have run up a $3 billion backlog in payments for oil supplied over the past few months. The Indian government has asked the State Bank of India to settle the outstanding payments soon.
India imported 21.3 million tons of crude oil from Iran in 2009-2010.
