NEW DELHI: India will seek US exemptions to buy Iranian oil and work towards setting up an alternative payment mechanism to protect its trade with the Islamic Republic in the wake of US sanctions against Tehran, according to officials familiar with the matter.Indian policymakers had initially believed that the sanctions may not matter to India this time as much as they did last time round since it has been unilaterally imposed by the US, but are now increasingly of the view that Europe may not be able to save the Iranian nuclear deal America has abandoned.Last week, an Indian delegation, comprising senior officials from the ministries of external affairs, finance and petroleum, returned from their visit to key European capitals with a strong feeling that Europe, despite strong words, may not be able to stand up to the US pressure, according to officials. This means the European banking channel used by Indian refiners to pay for Iranian oil could just get blocked.Indian state refiners route all their Iranian oil payment via State Bank of India and Germany-based bank Europaeisch-Iranische Handelsbank AG (EIH). SBI has already told refiners that it wouldn’t support payment from November 4 when most sanctions take effect.
64593278

Sanctions have begun hurting Indian refiners with freight for Iranian oil rising. “There is a marginal rise in shipping cost since shippers are reluctant to carry Iranian oil. Nobody wants to take chance,” said AK Sharma, finance chief of Indian Oil Corp, nation’s largest refiner and key importer of Iranian crude.Under previous sanctions, Washington had allowed India to make part payment to Iran in rupees under a sort of barter deal.The payment was routed via UCO Bank that has no US exposure. Iran used some of that money to pay for imports of food, chemicals, engineering products and drugs from India. The balance was transferred to Tehran after the sanctions were lifted in 2016.The government is again weighing the possibility of paying in rupee and exploring a banking channel that can escape US sanctions, officials said. It would also try and establish contacts with the US for waivers as it did last time, the official said, adding that so far there has been no conversations between the two countries on this. “Before we reach out to the US, we need to make up our mind on the kind of exemptions we need,” an official said.About 20 countries, including India and China, received waivers from the US during last sanctions that allowed limited oil import from Iran to these countries. India imports about $9 billion worth of oil from Iran and exports about $3 billion worth of a variety of goods to the Islamic Republic.“A trade gap of $6 billion would be hard to bridge if we were to switch to rupee payment. So, we will closely work with Iran to see how we can narrow this,” an official said.Iran is the third-largest supplier of crude to India and a supply disruption could force Indian refiners to look for more expensive substitutes. Indian refiners prefer Iranian supply as it comes with discounted freight and longer credit period. Executives at state refiners have said they will be able to make up for Iranian short supply from other sources if such a need were to arise.