Indian refiners have got the green light to prepare to pay Iran $1.4 billion in oil dues, two sources with knowledge of the issue said, in one of the first signs that last month’s nuclear deal is helping Tehran unlock frozen funds.
The landmark nuclear deal between Iran and six major world powers was struck on July 14 and sanctions could begin to be removed later this year if UN inspectors confirm Tehran is complying with its provisions.
Finance Secretary Rajiv Mehrishi asked refiners this month to prepare to pay Tehran two installment of $700 million, part of the money owed for oil imports, said the sources, who declined to be identified due to the sensitivity of the issue.
Iran is desperate for funds and investment to help its economy, crippled by decades of sanction.
Mehrishi last month led a delegation of officials from the Reserve Bank of India and state-run UCO Bank to Tehran to discuss oil payments.
The exact timing of the payments is unclear since the Finance Ministry is seeking clearance from the Office of Foreign Assets Control (OFAC) of the US Department of Treasury to go ahead, one of the sources said.
The office of India’s finance secretary did not immediately respond to a request for comment.
Release of some frozen dues allowed
The US Treasury said it did not comment specifically on countries or institutions involved in payments.
But in a statement said: “The US government has committed to render non-sanctionable the release in instalments of certain Iranian restricted funds held overseas in an amount consistent with instalments provided under previous JPOA relief periods.”
JPOA, or Joint Plan of Action, refers to an interim nuclear pact.
The Indian payments are likely to be conducted using a mechanism based on a series of back-to-back transactions in different currencies that are initially channelled through the Reserve Bank of India, the sources said.
Iran would eventually get the payment in dirhams from the United Arab Emirates’ central bank.
India is Iran’s biggest oil client after China, though New Delhi has reduced purchases under pressure from sanctions and Tehran has slipped to the seventh biggest supplier from the second before sanctions.
Indian refiners Mangalore Refinery and Petrochemicals Ltd Essar Oil, Indian Oil Corp, Hindustan Petroleum Corp and HPCL-Mittal Energy Ltd together owe Iran more than $6.5 billion.
This represents just over half of the bill for crude bought since February 2013, when a route to pay for Iranian oil through Turkey’s Halkbank was stopped.
Under an interim nuclear deal in November 2013, some of Iran’s blocked funds were released by Asian buyers, including India.
Indian companies have deposited 45 percent of their oil payments in a rupee-denominated account at an Indian state bank that Iran is allowed to use to buy goods not covered by sanctions such as food and medicines.
About Rs. 17,000 crore ($2.62 billion) are in Iran’s account with UCO Bank.