Iran was supplying the crude oil to Indian refiners on the free delivery basis has finally decided to recall the process and stop delivering the same free of cost. Iran has also terminated the three-year-old contract of getting paid for the half of the oil dues in rupees instead of the euro. What made Iran take this bold step and why it has decided to recall the entire contract? Read the complete story here.
Iran had commenced providing the free delivery of the crude oil to Indian refiners since 2013 due to the tough US sanctions crippled its exports. With shipping lines refusing to transport Iranian crude for fear of being sanctioned, Iran used its shipping line for the delivery and did not charge for transportation. “National Iranian Oil Company (NIOC) has written to Indian firms saying it will no longer be shipping oil for free,” an official said.
Besides the stopping of the free oil delivery to Indian refiners, it has also insisted on getting paid for the oil in Euro instead of rupees. It also issued to notice to refiners like Essar Oil and Mangalore Refinery and Petrochemicals Ltd. to clear the dues of $ 6.5 billion in Euro instead of rupees.
The officials from the company have made it clear that they will continue to ship the oil in tankers at discounted rates. “It will continue to ship the oil in its tankers but will charge a discounted tariff,” he said. The transportation free, for now, is less than half it takes to ferry oil from Iran. “Maybe in future this 50 per cent discount too may go,” he added.
The sources have revealed that the Iran will, however, continue to provide the 90 days credit period to the Indian company which was offered to them earlier by the Persian country. Iran has taken this step due to US lifting sanctions since January 2016. Iran has sent the official note to the companies in which it has mentioned that ‘old mechanism of paying 45 per cent of oil import bill in rupees and keeping the remaining 55 percent pending for payment channels to clear, stands terminated.’
The Indian companies have also assured to clear the pending payment of nearly $ 6.5 billion within next six months in installments to which Iran has given its approval. “NIOC is raising an invoice for oil it is now exporting to Indian refiners in Euros,” he said. Since February 2013, Indian refiners like Essar Oil and MRPL paid 45 per cent of their import bill in rupees to UCO Bank account of Iranian Oil Company. The remaining has been accumulating, pending finalization of a payment mechanism.
According to the sources, Indian Oil Corp (IOC), which owes over USD 580 million to Iran, may be the second in the queue followed by smaller payments by HPCL-Mittal Energy Ltd (HMEL) and Hindustan Petroleum Corp. Essar Oil may be the last to clear its about $3 billion dues. Officials said Iran has not yet decided on the utilization of the $3 billion which has accumulated in the rupee account with UCO Bank. It could use the money to make payments for imports of steel and other commodities from India.