India, Iran Settle Crude Oil Payment Issue

NEW DELHI—

India has finalized a mechanism to pay Iran for crude oil purchases after more than a month of uncertainty over a payment dispute and doubts about the continuation of vital crude supplies.



India has been negotiating with Iran since December, when the South Asian nation\'s central bank stopped Iran-related payments through a financial clearing house that Washington believes Tehran is using to avoid international sanctions.



The State Bank of India will now make payments to Iran in euros through the Hamburg-based European-Iranian Trade Bank AG, a senior government official said Thursday.



The decision is a relief for Indian oil companies, who obtain a significant portion of their crude supplies from Iran. After Saudi Arabia, Iran is India\'s second-largest supplier of crude oil, accounting for about 14% of the country\'s oil import bill.



After the Reserve Bank of India stopped payments to Iran through a long-standing clearing mechanism in December, Iran proposed a temporary payment channel through a euro account at Germany\'s Europaisch-Iranische Handelsbank AG, as EIH Bank is also known.



But routing payments to Iran through this bank may place India in an uncomfortable position with Washington, which has placed the bank under U.S. sanctions.



The U.S. Treasury blacklisted the bank in September saying it supported Iranian firms it alleges back the country\'s weapons proliferation. This bars the bank from conducting any business inside the U.S. It also means that any assets the bank holds in the U.S. financial system have been frozen. EIH Bank isn\'t subject to sanctions by the U.N. or the E.U.



The mechanism wasn\'t finalized and negotiations were prolonged due to fears it may not go down well with the U.S.



On Jan. 4 officials said that under the arrangement, Indian oil companies would open accounts with SBI, which will in turn would deposit the payments with EIH Bank.



A senior finance ministry official had said that SBI, India\'s largest bank by deposits and loan advances, would take precautions to avoid possible U.S. sanctions due to any dealing with the blacklisted EIH Bank.



There were also fears SBI\'s branches in New York, Chicago, Los Angeles and Washington could be affected by the U.S. legislation.



\"There was a reluctance on the part of the SBI to transact with EIH Bank. They have now been given comfort by the government at the highest level,\" the government official told reporters.



SBI declined to comment and EIH Bank couldn\'t be immediately reached for comment.



The official said Deutsche Bundesbank, Germany\'s central bank, has said the payments through EIH Banl aren\'t a problem as long as the Indian government can certify they are for crude oil purchases. A message left on the bank\'s website requesting confirmation didn\'t receive an immediate response.



Indian refiners have an account with SBI\'s Mumbai branch, which will now open an account with EIH Bank to start the transactions and the payments will be made in euros, the official said.



\"It was found that European countries were already transacting with the EIH Bank so India can also transact,\" the official said, adding that the companies will first clear an initial backlog of $2 billion in payments to Iran.


News From: http://www.7StarNews.com