India expects quick solution to Iran payments issue

By Nidhi Verma and Ratnajyoti Dutta

NEW DELHI (BestGrowthStock) – India will try to resolve a payments dispute with Iran when their central banks meet on Friday to keep oil shipments flowing from the Islamic Republic without backtracking on a move praised by the United States.

The Reserve Bank of India (RBI) said last week deals with Iran must be settled outside a long-standing Asian Clearing Union (ACU) system and Iran has refused to sell oil under the new rules, threatening about $12 billion a year of exports.

The White House, which wants governments to stop dealing with Iran because of its nuclear programme, on Wednesday praised the RBI’s move, which comes less than two months after President Barack Obama visited India.

But India, Asia’s third-largest economy, buys more than 400,000 barrels per day of crude oil from Iran — about 13 percent of total imports for the fast-growing economy.

Without a solution, its refiners would need to find alternative sources of oil at a time that international crude prices are near two-year highs and the country’s inflation rate is painfully high and rising.

“We are working on an alternate settlement mechanism. It is being discussed at length with the Ministry of Finance and a solution will be found in the course of the next few days,” Indian Oil Secretary S. Sundareshan said on Thursday.

Both the Indian government and the RBI, which has so far acted unilaterally in the ACU, suggested it was a broader problem, stepping back from a move which seemed allied to the United States and targeting Iran.

“The Asian Clearing Union mechanism … is under some stress and RBI wants to make changes,” Sundareshan said.

FINE-TUNING, NOT SEA CHANGE?

“Iran is an international problem. We have to find out a solution. Please understand it is not India’s problem, it is not Iran’s problem,” RBI Deputy Governor K.C. Chakrabarty told reporters in Bangalore on Thursday.

Among options to rescue oil trade between the two near neighbors is settlement in Indian rupees, similar to South Korea’s method of payment to Iran in Korean won, or another currency outside the dollar and the euro of the old mechanism.

“It can be any currency. It could be yen or (Iran’s) local currency,” Sundareshan said.

Analysts and political observers said India was fine-tuning its stance with an eye to ensuring its access to much-needed oil and protecting its interests in the region and the Middle East.

India, which has U.S. backing for its bid for a permanent place on the U.N. Security Council, has voted against Iran on its nuclear programme at the International Atomic Energy Agency while Iran has made statements supporting an insurgency in Indian Kashmir.

“India is seeing itself as a ‘major responsible power’ and it is aiming to be in concert with the other major responsible powers like the U.S., European Union, Russia and China,” said Uday Bhaskar, director of the National Maritime Foundation think tank.

Former Indian foreign secretary and a former ambassador to the United States, Lalit Mansingh, said India wanted Iran to understand it had “a nuanced position.”

“We have been saying, don’t force us to make a choice. But if it comes to a choice, we have far more at stake with the U.S. than with Iran,” he added.

But India, seen alongside China as an engine to pull the western world out of economic idling, has no desire to be seen by neighbors as playing a U.S. tune.

“America should not read too much into this. India is not an ally, in the sense it has not signed from A to Z. On nuclear issues, it can go with the U.S., but on energy it will go with Iran,” said P.R. Kumaraswamy, head of West Asian studies at New Delhi’s Jawaharlal Nehru University.

(Additional reporting by C.J. Kuncheria, Abhijit Neogy in Delhi and Bharghavi Nagaraju in Bangalore)

(Writing by Jo Winterbottom; Editing by Tony Munroe)

India expects quick solution to Iran payments issue