India’s imports of Iranian oil may be hit from the end of August after the State Bank of India informed refiners it would not handle payments for the crude from November, the finance chief of Indian Oil Corp (IOC) said on Friday.
The move by the state-controlled bank, India’s biggest, comes after US President Donald Trump pulled out of an international nuclear deal with Iran last month, pledging to reimpose tough sanctions within 180 days.
“(Oil) loading will be affected from end-August under the current mechanism unless a new payment route is established,” IOC’s A. K. Sharma told Reuters in a telephone interview on Friday.
Some sanctions take effect after a 90-day “wind-down” period ending on August 6, and the rest, notably affecting the petroleum sector, after a 180-day period ending on November 4.
Although New Delhi had cut imports from Tehran in 2017/18 due to a dispute over a giant gas field, Iran remained its third-biggest oil supplier. Iran supplied about 458,000 barrels per day (bpd), or about a 10th of India’s more than 4.5 million bpd of imports, in the fiscal year to March 2018.
SBI has written to the Indian refiners and the government that it would not be able to handle oil payments to Iran from November 4, an official at SBI said.
“We have said that we cannot handle oil payments to Iran in any currency as that will have an immediate impact on our US operations,” this source said.
An SBI spokesman did not immediately respond to requests for comment.
India’s refiners currently use SBI and Germany-based Europaeisch-Iranische Handelsbank AG (EIH) to buy Iranian oil in euros, according to IOC and other companies.
India, Iran’s top oil client after China, was one of the few nations that continued to trade with Tehran during a previous round of Western sanctions.
The South Asian nation has said it does not follow US sanctions, but companies and banks with links to the US financial system could face penalties if they do not comply.
Iran offers Indian refiners a 60-day credit period on oil sales, which means payment for cargoes loaded from the end of August will be due in November.
Analysts feel Iran may have to offer more incentives to protect its oil sales to India.
“Indians may ask Iran for more discount in exchange for early payment for oil purchases instead of a 60-day credit period,” said Sri Paravaikkarasu, head of East of Suez Oil at consultancy FGE.
Seeking to safeguard oil imports from Iran and scout for alternate payment avenues, an Indian delegation last week visited officials and bankers in France, Germany, Britain and Brussels, the base for the European Union.
“That visit was only exploratory in nature ...we are still watching the situation,” Indian Oil Minister Dharmendra Pradhan told Reuters this week.
Apart from banks, shipping firms and insurance companies have already begun distancing themselves from Iran.
IOC’s Sharma said his firm received very few responses to inquiries on hiring tankers to import Iranian oil.
“Only NITC (National Iranian Oil Company) and a few others participated, “ he said, adding freight rates for transportation of Iranian oil have also gone up due to the threat of sanctions.
IOC previously said it would look at buying oil from traditional suppliers mostly in the Middle East to compensate for any cut in supplies from Iran related to US sanctions.
Indian state-refiners previously drew up plans to almost double oil imports from Iran, which had offered deep discounts on shipping of crude.
Officials at other state refiners Hindustan Petroleum and Bharat Petroleum Corp confirmed receiving the SBI letter.
Mumbai-based refiner Reliance Industries Ltd, owner of the world’s biggest refining complex, plans to halt oil imports from Iran, while Rosneft-promoted Nayara Energy has started cutting purchases from this month, sources previously told Reuters.
BPCL’s head of refiners R. Ramachandran said there were other potential suppliers, including Canada and the United States or other Middle East states, that could replace Iranian crude.
“We hope suppliers like Iraq and Saudi Arabia will fill the gap,” he said. “We will get alternatives similar to Iranian oil but we will have to pay extra”.