India made a $550 million payment to Iran on Thursday to partly clear pending oil dues, under an interim deal that allows Tehran access to $4.2 billion in blocked funds globally, industry and government sources said.
Asian buyers such as Japan and South Korea have cleared some of their oil dues as per a payment schedule approved by world powers in a breakthrough deal with Iran in November.
Iran wanted the last three installments, totalling $1.65 billion, from India. New Delhi could not, however, remit the funds sooner as the banking channel to make payment had not been established.
The mechanism now in place allows Tehran to be rewarded for cooperating in talks with world powers over its nuclear programme, while meeting a U.S. insistence that the funds can be properly tracked, sources say.
"Yes we have made payment today to settle a part of our outstandings to Iran, as per the directive from the oil ministry," said a source at Mangalore Refinery and Petrochemicals Ltd.
Indian refiners MRPL, Essar Oil, Indian Oil Corp., Hindustan Petroleum Corp and HPCL-Mittal Energy Ltd. together owe about $4.6 billion to National Iranian Oil Co as of May 31, a government source said.
"All five refiners have made the payment," the government source said, adding the next two installments of $550 million each would be cleared as and when requested by Iran.
Officials at three other refiners also confirmed that their firms had made a payment on Thursday. None of the sources wanted to be identified because of the sensitivity of the issue.
The refiners are making payment in rupees to UCO Bank, an Indian state-controlled bank. After a complex series of back-to-back transactions, payment will eventually be made in dirhams by the UAE central bank to Iran's central bank.
For Thursday's installment, MRPL was asked to pay about $238 million, Essar $231 million, IOC $57 million, HPCL about $8 and HPCL-Mittal about $15 million to Iran, the sources said.
India has been settling 45 percent of Iranian oil payments by transferring rupees into Iran's account with UCO Bank, while the refiners hold the remainder. Tehran is using the funds in UCO Bank to pay for goods imports from India.
India had used Turkey's Halkbank to clear part of its Iranian oil dues, but that route was closed in February 2013 as sanctions prevented Iran from repatriating cash it earned from oil sales.
India, which imports a total of 4 million barrels per day of oil, has been steadily reducing its dependence on Iran, whose share in its overall oil imports has fallen by two-thirds over the last five years to 5.7% in 2013/14.