The Reserve Bank of India (RBI) has capped weekly dollar purchases by oil refiners to pay off their debts to Iran in order to avoid pressure on the Rupee, three sources said on Monday.
India is one of the biggest buyers of Iranian crude and built up a payments backlog when Iran was under Western sanctions, with its refiners owing about $6.5 billion to Iran.
They have cleared $770 million in euros through Turkey’s Halkbank to National Iranian Oil Co (NIOC). The state-run Union Bank of India (UBI) facilitated the payments.
The refiners had been holding back 55 per cent of payments to Iran after a channel through Halkbank was closed in 2013, although payment of some of those funds was allowed after an initial temporary deal to lift the sanctions.
Last week, on the basis of an RBI advisory, India’s oil ministry wrote to refiners saying the remaining dues can be settled in three months from May 30 and told companies to ensure demand for foreign exchange is limited to $500 million per week, the sources said.
“RBI wants to stagger payments to Iran to pre-empt any undue volatility in the domestic forex market,” said one source.
The rupee touched a near three-month low of 67.77 to the dollar last week, partly due to dollar purchases to settle a portion of the Iranian oil dues the week before.
India’s oil ministry has asked state refiner Mangalore Refinery and Petrochemicals Ltd (MRPL) to coordinate with other firms to ensure that weekly payments do not exceed $500 million.
The RBI declined to comment on specifics but reiterated in an email that the foreign exchange market should remain orderly.
MRPL has settled $500 million in dues to Iran followed by $250 million by Indian Oil Corp. Last week Hindustan Petroleum Corp paid $17.5 million to NIOC.