Iran’s foreign ministry spokesman Ramin Mehmanparast said on July 19 that his country would cut crude oil supplies to India from August 1, in view of undue delays on the part of the Indian government to work out an appropriate mechanism to settle outstanding payments for imported oil.
The payment crisis — with outstandings from India peaking to over $5 billion — was sparked when various Asian, West Asian and European banking channels were successively closed due to international sanctions on Tehran for its controversial nuclear programme.
The timing of Iran’s announcement, coming as it did when US secretary of state, Hilary Clinton was visiting New Delhi last week, was viewed by experts as an arm-twisting tactic by Tehran so that India would take up the payments issue with the US in view of the fact that Iran is India’s second-biggest source of crude oil and meets 12% of our oil demand.
What probably came as a jolt for Tehran was the reaction from the Indian oil companies. Immediately after Mehmanparast’s statement, the oil firms — MRPL, Essar Oil, Indian Oil and HPCL — made it clear that they are looking for alternate sources to meet their requirements, from nations such as Kuwait, UAE and Saudi Arabia, in case of eventualities.
That it might have to locate a new buyer for the over 400,000 barrels of oil that it sends to India every day was probably not in Iran’s calculation. In any case, it immediately stepped back from is official’s statement, and issued another statement on July 22, saying that it had no plans “yet” to cut oil exports to India.
“No decision has been made yet…,” the caretaker oil minister Mohammad Aliabadi was quoted by various foreign news agencies as saying on Saturday.
Tehran’s increased international isolation ever since sanctions were imposed on it by the US in an attempt to halt its nuclear programme has evidently started hurting Iran’s economic interests. The annual trade between Iran and India stands at $12 billion. In the absence of an appropriate payment channel, Iran is eventually bound to feel the pinch.
There have been reports that Iran’s foreign minister, Ali Akhbar Salehi is planning to visit India shortly to end the seven-month standoff over payments.
Clearly Iran seems to have realised that India is an important destination for its crude oil supplies. Diverting such big supplies from its second-largest customer behind China may not be a realistic option, especially when crude oil prices have peaked at above $115 a barrel.