India has asked refiners that owe about $6.5 billion to Iran for oil imports to build up dollar and euro balances to avoid downward pressure on the rupee if six world powers and Tehran reach a final nuclear deal.
Local refiners still owe Iran about 55 percent of the bill for crude bought since February 2013, when a route to pay for Iranian oil through Turkey's Halkbank was stopped under pressure from U.S. and European sanctions.
Iran, the United States, Russia, China, France, Britain and Germany are trying to end a 12-year-old standoff by striking an agreement that would open the door to lifting sanctions in return for limits on Iran's sensitive nuclear work.
Once an agreement is reached, Iran would likely ask for payment of its oil dues, India's oil ministry said in a June 11 letter to refiners that was seen by Reuters.
India, despite agreeing to a U.S. request to curb oil imports from Iran to help force a deal, is keen to rebuild its trade relationship with the OPEC member state.
"The refineries may buy forex in the spot/forward market in an incremental manner so as to build up the required USD/EUR balance," the oil ministry said in the letter.
The letter was sent to five refiners - Indian Oil Corp , Mangalore Refinery and Petrochemicals Ltd, Essar Oil, Hindustan Petroleum Corp and HPCL-Mittal Energy Ltd (HMEL).
The rupee dipped briefly on the news but currency dealers said the refiners had likely built up their hard currency positions since the letter was sent to them.
"It may have been covered or hedged in forwards," said Ashtosh Raina, head of foreign exchange trading, HDFC Bank in Mumbai.
The oil ministry advised refiners to make arrangements and seek approvals from the Reserve Bank of India (RBI) to make the payments.
"Depending upon the terms and conditions of the agreement, the payment may be in one go or could be staggered ... over a few weeks," it said.
Talks in Vienna are likely to miss Tuesday's deadline, but should continue in search of a deal that would allay fears that Iran is seeking to build an atom bomb. Tehran says its intentions are peaceful.
Getting the approvals
Under an interim deal between Iran and the international powers in November 2013, some of the blocked funds have already been released for Iran.
The companies are depositing 45 percent of their oil payments in a rupee-denominated account at an Indian state bank that Iran is allowed to use to buy non-sanctioned goods such as food and medicines from the South Asian nation.
Two refiners confirmed they have approached State Bank of India to open dollar and euro accounts, and SBI has in turn applied to RBI for approval to pay Iran.
India's imports of Iranian crude oil rose by 66 percent in May from a year earlier to their highest level since March 2014. Two months earlier India had imported no oil from Iran for the first time in at least a decade.
India on Monday extended approval to two Iranian insurers to cover container and tanker vessels calling at Indian ports by a year to June 25, in a move that will aid oil imports from Tehran.