India makes $550 million oil payment to Iran

India made a $550 million payment to Iran to partly clear pending oil dues, under an interim deal that allows Tehran access to $4.2 billion in blocked funds globally.

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 2013.

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 US insistence that the funds can be properly tracked.

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 2014, 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.

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. 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 percent in 2013/14.