3rd UPDATE: India, Iran Central Banks To Meet Friday On Oil Payments Issue

MUMBAI (Dow Jones)--India and Iran scrambled to end a deadlock over crude oil payments with their central banks scheduled to meet Friday after recent curbs from New Delhi threatened to disrupt supplies to Asia\'s third-largest economy.



India is trying to work out an alternative mechanism for payments to Iranian companies after the Reserve Bank of India last week closed the Asian Clearing Union route, a move which effectively stops settlements in U.S. dollars and the euro. Officials from India\'s central bank and finance and oil ministries as well as oil industry executives have been locked in hectic negotiations to resolve the impasse.



\"[The] deputy governor of Iran\'s central bank is coming to meet RBI officials tomorrow [Friday]. Oil companies would also be present there,\" Oil Secretary S. Sundareshan told reporters Thursday at a hurriedly called press conference in New Delhi. \"A decision could be expected in the next few days.\"



While he didn\'t name the Iranian official, the website of the Iran central bank lists Seyed Hamid Pour Mohammadi as the deputy governor.



An email sent to Mohammadi\'s office didn\'t elicit a reply. A Reserve Bank of India spokeswoman confirmed the meeting with the Iranians.



The rush to end the stalemate highlights the fine balancing act that New Delhi has to maintain between securing its energy needs and its growing proximity with the United States.



Iran is India\'s second-largest supplier of crude oil, after Saudi Arabia. India imports $11 billion of crude annually from Iran--about 14% of its total crude import bill, according to government data. State-run Mangalore Refinery & Petrochemicals Ltd. and Indian Oil Corp. and private-sector Essar Oil Ltd. are among the largest importers.



Sundareshan said the Asian Clearing Union was under \"some stress,\" as a result of which the RBI wanted to make changes to this payment mechanism. He didn\'t elaborate on the stress the ACU was facing.



The ACU, which comprises Iran and eight South Asian nations including India, has been long under the U.S. scanner as the transactions it handles are settled by the central banks of these nations. That makes it difficult to identify individual firms doing business.



In January 2009, Iran\'s government advised local and Indian companies to use the ACU as a way of avoiding international sanctions and the U.S. banking system.



India, however, sought to allay any fears about the ACU move being driven by any fear of sanctions to Indian firms.



\"The import of crude [from Iran] and payment for that does not attract sanctions in our opinion,\" Sundareshan said.



In Bangalore, RBI Deputy Governor K.C. Chakrabarty said the two governments and the central banks must \"find out that if we are going to do business how the transactions will take place.\"



While India\'s oil companies said they didn\'t expect any immediate supply shortage, a delay in solving the issue has the potential to raise India\'s import bill.



The Times of India newspaper reported Thursday, citing unnamed sources, that the impasse has raised doubts over the supply of about 10 million barrels of oil contracted for January from Iran.



However, Bhaswar Mukherjee, finance director at state-run Hindustan Petroleum Corp., said the company won\'t face any immediate payment issues since it has a 90-day credit line with National Iranian Oil Co.



Hindustan Petroleum imported 3 million metric tons of crude from Iran in the fiscal year through March 2010 and is likely to import the same amount this financial year.



Indian Oil\'s finance director, S.V. Narasimhan, said reports that Iran has stopped crude supplies to India are \"unfounded.\"



\"As of now, there are no problems of non-supply of crude from Iran. Generally, in relation to our [Indian Oil\'s] requirement of about 50 million tons, our import from Iran is pretty low,\" Narasimhan said.



An analyst at a local brokerage, who didn\'t want to be named, said any non-resolution of the payment issue may lead to short-term supply disruptions.



\"Typically Iran has been one of the larger suppliers of crude to India over the last 18-24 months. They\'ve also supplied crude at favorable terms, and their crude is at a discount to Brent,\" he said. \"The question is at what price India can get crude from other sources and will the terms be as favorable.\"


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