The Indian government recently announced that it will insure domestic oil refineries so they can continue importing Iranian oil. Can you explain the purposes and objectives of the plan?
In the past Indian companies insuring domestic refineries for their Iranian oil shipments hedged against the risk of losses through European reinsurance companies. Due to the tightening of the sanctions, however, European reinsurance companies are no longer willing to provide coverage for Iranian oil shipments to India. In order to continue the oil trade, India’s Petroleum Ministry recently announced that it will step in as the guarantor of last resort by establishing a special reinsurance fund. This plan has just been announced and the exact details will be unveiled in coming weeks.
The U.S. enacted additional sanctions against Iran that went into effect in February, which prohibit payments for Iranian oil imports in gold and tightened the loopholes in previous sanctions that enabled some financial institutions (eg in Turkey) to route payments for Iranian oil. How are these effecting India’s ability to import Iranian oil?Enjoying this article? Click here to subscribe for full access. Just $5 a month.
As always it is a cat and mouse game. As long as the sanctions keep getting tighter, India will attempt to find ways to circumvent them.
Over the last 18 months or so, India has reduced the amount of oil it imports from Iran, but refused to terminate the trade. It had been purchasing Iranian oil by processing about half the payment in euros via Turkey’s Halk Bank, and the rest in rupees via a local Indian bank, UCO.
Western sanctions have led Halk Bank to recently to pull out of this arrangement, creating difficulties for India’s refineries, particularly the Mangalore Refinery and Petrochemicals, Iran’s largest Indian oil buyer.
Mangalore Refinery and the other importers are currently exploring ways to pay for Iranian oil via a combination of rupee-denominated bank transactions and barter trade, wherein India would pay for imported oil with exports of soft commodities such as wheat and manufactured goods like pharmaceuticals. Since the 2013-14 financial year in India just started in April, these contractual agreements are in the process of being renegotiated.