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China and India stockpile growth absorbing oil surplus, say experts

Tuesday, October 1st, 2013

A surfer rides a wave with an oil drilling rig in the background in Huntington Beach, California, USA 29 September 2013. (EPA/MICHAEL NELSON)

A surfer rides a wave with an oil drilling rig in the background in Huntington Beach, California, USA 29 September 2013. (EPA/MICHAEL NELSON)

Asharq

Written by : Shuja Al-Baqmi
on : Tuesday, 1 Oct, 2013
Saudi Arabia still well-placed in international oil market, with domestic demand set to drop
Riyadh, Asharq Al-Awsat—Surplus global oil production is being bought up by India and China, say experts, as part of an effort by the two states to bolster their stockpiles.Experts say that the strategic oil reserves of China and India have recently increased, and are expected to continue to grow in the future. China’s oil reserves are expected to rise to 150 million barrels by the end of the current year, while India’s reserves are currently at 50 million barrels of oil.

Speaking to Asharq Al-Awsat, the experts said the supply surplus in the international oil market had reached 900,000 barrels a day and that “this surplus was being purchased by some of the major countries to add to their reserves, including China and India.”

Energy affairs expert, Ni’mat Abu Al-Souf, told Asharq Al-Awsat that a strategy of building reserves was being implemented by some of the world’s major net oil consumers, regardless of cost.

He said “the strategy to increase the reserves is to confront market fluctuations or the reduction in supply, amid high consumption in these countries.”

Abu Al-Souf added that “China produces around four million barrels of oil daily while it consumes 10 million barrels per day, therefore, it needs to be prepared for any interruption or reduction in supply.”

Meanwhile, Saudi Arabia’s efforts to decrease domestic oil consumption are expected to bear fruit in the near future.

Abu Al-Souf said “Saudi Arabia has started taking effective measures to reduce domestic energy consumption by relying on gas. Current consumption ranges between 2.8 and 3 million barrels per day.”

He predicted that the benefits of the programs to reduce energy consumption in Saudi Arabia will start to show within two years.

Meanwhile, economics expert Faisal Al-Iqab said the increase in the strategic reserve of some countries was aimed at protecting their markets from world market fluctuations or reductions in supply. He said “amid the geopolitical crises in the region, especially in Libya, Iran, and Syria, countries which have high consumption rates try to take precautionary measures by increasing their strategic reserves.”

Meanwhile, Abdelwahab Al-Sa’adoun, Secretary-General of the Gulf Petrochemicals and Chemicals Association (GPCA) said “the economic development in some countries has an important impact on the volume of international demand for oil. This is what is taking place in China, one of the largest world markets in terms of demand for oil, which largely relies on Saudi oil in particular, and Gulf oil in general.”

He added that a drop in the rate of economic growth in China in the final months of 2012 reduced demand. In turn, this prompted Saudi Arabia to reduce its production by around 700,000 barrels per day, to reach the current level of 9 million barrels per day.

Al-Sa’adoun added that Saudi Arabia was still playing a balancing role in the international oil market. He said: “Saudi Arabia has smart policies, through which, balance can be maintained in world markets, and which gives markets and investors confidence in its policies.”

Al-Sa’adoun said despite the increase in domestic production in the United States, American imports still stood at around 8 million barrels per day. He added that Saudi Arabia was able to reach a level of oil production of 12.5 million barrels per day, should the world markets need it.

Rupee’s Plunge Prompts Refiner to Embrace Iran: Corporate India

Tuesday, September 3rd, 2013

Bloomberg

By Debjit Chakraborty & Rakteem Katakey - Sep 3, 2013 4:40 AM PT

Mangalore Refinery

An undated company handout image shows a Mangalore Refinery & Petrochemicals Ltd. facility in Mangalore, India. Source: Mangalore Refinery & Petrochemicals Ltd. via Bloomberg

India is increasing imports of crude oil from Iran as policy makers risk flouting U.S. trade sanctions in their scramble to halt the slump in the rupee.

Mangalore Refinery & Petrochemicals Ltd. (MRPL), India’s biggest buyer of Iranian crude, plans to buy five cargoes of 85,000 metric tons each this month, compared with three in August, Managing Director P.P. Upadhya said in an interview. Shipments from the world’s only producer that accepts rupee payments for oil are estimated to rise to 4 million tons in the year ending March 31, versus 3.9 million tons in the previous 12 months.

India is among a few countries eligible for a waiver of a U.S. law that imposes financial sanctions unless they can show they have “significantly reduced” purchases from the Persian Gulf country. Prime Minister Manmohan Singh is seeking options to revive the $1.8 trillion economy, which relies on imports to meet 80 percent of its energy needs, as he struggles to stem capital outflows that have weakened the rupee by 19 percent this year against the dollar.

“Importing crude oil from Iran is crucial as it helps in curbing dollar outgo in a big way,” Upadhya said by phone from Mangalore on India’s west coast. “We can make part payment in rupees. That’s the arrangement.”

Atomic Research

The U.S. and European Union are seeking to curb trade in Iranian oil, arguing the Persian Gulf state’s atomic research is aimed at producing weapons. The government in Tehran says it is for civilian purposes. Asian customers of Iran, including China, India and South Korea, won waivers from the U.S. allowing imports of Iranian crude as they were able to show purchases had been curbed.

While India has abided by several rounds of United Nations sanctions on Iran over the country’s nuclear program, it has publicly criticized unilateral American sanctions as an infringement on its sovereignty. Finance Minister Palaniappan Chidambaram told reporters last month that India is considering stepping up imports without breaching UN rules.

Indian refiners buying Iranian crude deposit at least 45 percent of their payments in rupees into a bank account, former junior oil minister R.P.N. Singh said in August last year. Iran in return paid for imports of commodities including rice from India in rupees. The nations also briefly traded in euros after the Reserve Bank of India dismantled a mechanism used to settle payments in dollars in December 2010.

Currency Benefit

“Buying more crude from Iran is positive for Indian refiners like Mangalore Refinery due to currency benefit and lower freight cost,” said Kamlesh Kotak, head of research at Asian Markets Securities Pvt. Ltd. “This would be a short term benefit, and the government needs a structured policy to handle the current-account deficit better.”

South Korea imported 815,447 tons of Iranian crude in July, 38 percent higher than a year earlier, Korea Customs Service said on its website Aug. 15. China’s imports in the month fell 13 percent to 1.69 million tons, according to data from General Administration of Customs in Beijing.

Curbs on buyers have made Iran the sixth-biggest producer in the Organization of Petroleum Exporting Countries, dropping from the No. 2 position. The nation has the capacity to produce 3.5 million barrels per day, almost equivalent to India’s total import requirement. Output rose 0.4 percent in August to 2.57 million barrels a day from the previous month.

Halted Purchases

Mangalore Refinery and Hindustan Petroleum Corp. (HPCL), the nation’s third-biggest state refiner, and Chennai Petroleum Corp. (MRL) halted crude purchases from Iran in April after Indian insurers declined coverage. India’s government is preparing a 20 billion-rupee insurance fund for future purchases, Financial Services Secretary Rajiv Takru said Aug. 19.

“If the government wants us to import Iran crude, we can do so, since we have processed this crude in the past,” A.S. Basu, managing director at Chennai Petroleum, a unit of Indian Oil Corp., said in a Sept. 2 phone interview. “How much volume we might actually take this year will depend on what price is being offered.”

Iran’s Naftiran Intertrade Co. owns 15.4 percent of Chennai Petroleum, making it the second-biggest holder, according to data compiled by Bloomberg.

In the absence of Iranian oil, refiners would need to buy crude from the spot market which is typically more expensive. Mangalore Refinery reported a loss of 4.5 billion rupees ($68 million) in the three months ended June 30, its third consecutive quarter of losses. Raw material costs rose 6.8 percent to 144.1 billion rupees compared with a year earlier.

Shares Drop

Mangalore Refinery’s dropped 1.4 percent to 30.90 rupees in Mumbai trading today. The stock has dropped 49 percent this year, heading for its worst annual performance since 2008. Chennai Petroleum has slumped 57 percent since January and Hindustan Petroleum has slid 43 percent, compared with a 6.1 percent decline in the benchmark S&P BSE Sensex (SENSEX) index.

Oil imports have contributed to India’s widening current-account deficit, which in turn is undermining efforts to revive economic growth from its slowest pace in a decade. Gross domestic product rose 5 percent in the year to March 31, the smallest gain since 2003, while the rupee plunged to an all-time low of 68.845 a dollar on Aug. 28.

India imported about 7.2 percent of its crude from Iran in the past fiscal year, down from about 11 percent in the previous 12-month period, according to the oil ministry.

“If India is able to adjust oil imports from Iran against exports using the Indian currency, it will squeeze our dollar demand significantly,” said Chokkalingam G., the chief investment officer at Centrum Wealth Management Ltd. in Mumbai, which manages the equivalent of about $290 million in Indian stocks. “It will make a big difference to India’s exchange rate management and at the same time push up export of commodities.”

India’s Iran oil imports drop 75% in July

Thursday, August 22nd, 2013

The cut in Essar Oil's Iran volumes were likely due to New Delhi's delay in extending approvals for Iranian insurers covering shipments into India.

The cut in Essar Oil’s Iran volumes were likely due to New Delhi’s delay in extending approvals for Iranian insurers covering shipments into India.

By Reuters | 22 Aug, 2013

 

NEW DELHI: India’s imports of Iranian crude plunged by three quarters in July from June, tanker arrival data obtained by Reuters showed, as the country’s only active importer in the past two months curbed buying.

The cut in Essar Oil’s Iran volumes were likely due to New Delhi’s delay in extending approvals for Iranian insurers covering shipments into India, a trade source said.

Indian imports of Iranian crude are expected to rise from August, however, with refiner Mangalore Refinery and Petrochemicals Ltdresuming shipments after a gap of four months because of a separate insurance issue.

MRPL’s return as a buyer could give some relieve to Iran, which has seen its exports more than halved by sanctions imposed in 2012 by the United States and the European Union, costing Tehran billions of dollars a month in lost oil revenue.

India on July 17 granted a three-month approval to Iranian shipping underwriters Kish P&I Club and Moallem Insurance Co with effect from June 28, the date of lapse.

Essar Oil has declined to comment on whether the issue over the shipping insurers resulted in its lower imports for July or if the resolution means its imports would rebound in August.

Essar Oil imported 35,500 barrels per day (bpd) of oil from Iran in July, compared with 140,800 bpd in June, tanker arrival data made available to Reuters shows.

The cuts dropped India’s Iranian oil imports 82 per cent from 201,900 bpd in the same month a year ago, when state-backed refiners were also taking shipments.

Iran dropped in July to 15th place on the list of India’s crude suppliers for the month, down from eighth place in June and fourth for all of 2012.

The US and EU sanctions placed on Iran over its nuclear programme have reduced its oil exports more than half from pre-sanction levels of about 2.2 million bpd.

In the first half of 2013, imports of Iranian oil from its four biggest buyers – China, India, Japan and South Korea - fell more than a fifth from a year ago to around 960,000 bpd.

MRPL, which used to be Iran’s top Indian client, and Hindustan Petroleum Corp Ltd halted Iranian oil imports in April due to difficulties in getting insurance for refineries processing Iranian oil. That forced New Delhi to look at providing its own reinsurance after European firms backed out over sanctions.

MRPL has already started taking Iran oil again, while HPCLBSE 3.43 % has said it wants more adequate coverage for refineries running the sanctions-hit crude.

The Indian government also wants to boost imports from Tehran to prop up the rupee, which fell past 65 to the dollar to a record low on Thursday.

The US and European Union sanctions have pushed Tehran into accepting payment in rupees for some of its oil, and higher volumes could support the currency.

“Within the UN sanctions and fully complying with the sanctions, there may be more space for imports from Iran,” Finance Minister P. Chidambaram said earlier this month.

Overall in the first seven months of this year India’s imports from Iran have declined 46 per cent from the same period last year to about 185,700 bpd, the trade data showed.

India imported nearly 58 per cent more oil from Latin America in the January to July period as its Iranian shipments dropped.

Overall, Asia’s third-largest economy shipped in 14.1 per cent more oil in July than a year ago, while imports for the January-July period rose about 10.3 per cent, the data showed.

Iran continues ‘illegal coercion’ and detention of ship, India fumes

Friday, August 16th, 2013

The Times of India

Sachin Parashar, TNN | Aug 16, 2013, 03.40 AM IST

NEW DELHI: Refusing to buy Tehran’s contention that the Indian oil tanker it detained was causing pollution, India has told Iran that it had no business to force the ship into entering Iranian waters. Confirming that there was continuing “illegal coercion” by Iranian Revolutionary Guard Corps (IRGC) in holding back the ship in Iranian waters, sources here said the government sees this as “an unfriendly act”.

After almost 24 hours of negotiations withIranian authorities, the government said though it is still hoping that MT Desh Shanti, a medium-size tanker carrying 140,000 tonnes of crude from Iraq, will be released soon from its “illegal detention”. While the shipping ministry said there was no provocation for such an act by Iran, MEA remained tight-lipped except to say it is in touch with Iran over the issue throughdiplomatic channels in both New Delhi and Tehran.

Iran has also demanded an anti-pollution undertaking from the ship’s captain and owner, Shipping Corporation of India, for releasing the vessel. TOI had first reported on Thursday how the Iranian Revolutionary Guard Corps (IRGC) had detained the vessel in international waters.

The location of Desh Shanti turned into a mystery later in the day with an Iranian news agency reporting that the ship had been diverted toKhor Musa port in Iran’s Khuzestan province from its earlier location of Bandar Abbas.

Indian officials said United Nations Convention on the Law of the Sea (UNCLOS) should have guaranteed safe passage for the ship. Iran has signed but not ratified UNCLOS. However, Iran has ratified the 1958 Geneva Convention on the Territorial Sea and Contiguous Zone. Both the conventions prevent Iran from blocking passage of all vessels without any provocation or justification.

Sources said the IRGC took control of the Indian ship on Tuesday itself before they forcibly tried to take it to the Bandar Abbas port, adding there was neither any reason nor precedent for such an “illegal action”.

According to Iran’s version of events, an oil ballast from the Indian ship left a 10-mile-long stain on Iranian waters in the Persian Gulf. India has vehemently denied this saying there was no evidence to suggest any environmental pollution whatsoever. Sources here said if pollution indeed was the reason for detaining the ship, the Revolutionary Guards did not have to forcibly pull the vessel out of international waters and take it all the way to Bandar Abbas.

Desh Shanti was subjected to a thorough inspection by Iranian authorities after it entered Iranian authorities. There were reports from Iran on Thursday that the vessel may be subjected to another round of inspection.

“What prompted such an action by IRGC to take such coercive and illegal actions against the rights of a merchant tanker of friendly country remains a mystery,” said a source.

India reduces oil imports from Iran

Thursday, August 8th, 2013
Written by : Asharq Al-Awsat
on : Wednesday, 7 Aug, 2013
US-led economic sanctions result in decreased demands from Iran’s oil clientsIranian Oil Minister Rostam Qasemi (right) walks with India's Oil Minister M Veerappa Moily after a meeting in New Delhi May 27, 2013. (Reuters/Mansi Thapliyal)

Iranian Oil Minister Rostam Qasemi (right) walks with India’s Oil Minister M Veerappa Moily after a meeting in New Delhi May 27, 2013. (Reuters/Mansi Thapliyal)

London, Asharq Al-Awsat—Iranian oil exports face further setbacks after the Indian Oil Corporation (IOC) announced plans to reduce its imports from the heavily sanctioned Islamic republic by 23 percent, according to Veerappa Moily, the Indian minister of petroleum and natural gas.

Iranian crude exports—targeted by US-led economic sanctions—reached their lowest figures in a decade earlier this year, when shipments dropped to 700,000 bpd in May.

Washington aims to further reduce this number to 500,000 bpd—less than a quarter of Iran’s exports before the current round of sanctions.

The state-owned IOC is one of India’s main oil refiners. It imported 1.56 million tonnes of oil from Iran in the last fiscal year, equivalent to 31,200 barrels per day (bpd).

Moily confirmed in a written statement that the IOC was not severing links with Iran completely, and has entered a contract for 24,000 bpd, the Reuters news agency reported.

This reduction of 22.63 percent is in line with US and European sanctions, imposed due to suspicions over Iran’s controversial nuclear program, which the Islamic Republic insists is wholly peaceful.

Earlier this year, Indian refineries were threatened with having their insurance invalidated, as the insurance companies covering oil refineries are based in Europe, where strict sanctions are in place to prevent involvement in the Iranian financial markets.

“There are issues related to payments as well as the insurance issues faced by oil refineries due to the sanction [against Iran]. That’s why the import is down,” an Indian government official said at the time.

At that time, Iranian shipments accounted for 7.2 percent of India’s total imports—down from 10.5 percent the previous year.

The Iranian oil minister, Rostam Qasemi, visited India late May to meet with Veerappa Moily and other Indian officials, in an attempt to increase exports to the emerging Asian nation.

The diplomatic trip was unsuccessful when Iranian offers to provide insurance to refiners were rejected.

“Iranian insurance companies are under sanctions, how can I take cover from them?” one Indian oil executive said after the talks.

As with other key Iranian oil clients, such as South Korea and Japan, India has begun sourcing its vast energy needs from other countries.

When Moily visited Iraqi officials in Baghdad last month, he said that they had “assured that they were ready to supply as much as India wants. We will finalise our requirements soon after due negotiations. It is also open to considering more favourable commercial terms, including extending the interest-free credit period from 30 to 60 days.”

Much of the IOC payments to Iran had been conducted in euros through Halkbank in Turkey, until they were halted in February under pressure from the US sanctions. Such payments accounted for USD 415 million throughout the previous fiscal year, which ended in March.

The remainder of the USD 1.26 billion has been paid in rupees, through a local Indian bank.

According to its government, Iran holds roughly 10 percent of the world’s proven oil reserves, but has become increasingly unable to export its oil due to sanctions imposed by the US and the UN.

At the beginning of the year, Rostam Qasemi affirmed for the first time that sanctions had affected the Iranian economy. Speaking on January 7 he acknowledged that petroleum exports and sales had fallen by at least 40 percent.

The announcement came in the wake of both the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency reporting that, by the end of 2012, exports of Iranian crude had fallen by around a million bpd.

U.S. keeps India waiting on Iran sanctions waiver

Monday, May 7th, 2012

By Andrew Quinn

KOLKATA | Mon May 7, 2012 6:52am EDT

(Reuters) – U.S. Secretary of State Hillary Clinton leaned harder on India on Monday to deepen cuts of Iranian oil imports, saying Washington may not make a decision on whether to exempt New Delhi from financial sanctions for another two months.

Clinton, on a three-day visit to India, said the United States was encouraged by the steps its ally had taken so far to reduce its reliance on Iranian oil but that “even more” action was needed.

The oil issue has become an irritant in ties between India and the United States. India is unwilling to be seen to be bowing to U.S. pressure and is reluctant to become too reliant on Saudi Arabia for its oil needs, which officials say privately would be strategically unwise.

The sanctions threaten to shut out Iranian oil importers from the U.S. financial system unless they make significant and continuing cuts to their crude purchases by an end-June deadline.

India is Iran’s second-biggest crude customer, so it is crucial to the U.S. strategy of choking off the Iranian economy to force Tehran’s leaders to curb their nuclear program.

“We do not believe Iran will peacefully resolve this unless the pressure continues. We need India to be part of the international effort,” Clinton told a townhall-style meeting in the eastern city of Kolkata.

Publicly, India has rejected Western sanctions but privately it has pushed local refiners to start cutting imports. India’s refiners signed new yearly contracts with Iran running from April 1 and Reuters calculations suggest imports could plunge about 25 percent in 2012/2013.

Indian Finance Minister Pranab Mukherjee said in April that India had already substantially cut Iranian oil imports. But Clinton’s comments on Monday suggested that Washington expected more action before it would grant the sanctions waiver.

The United States in March granted exemptions to Japan and 10 European Union nations. India and China, Iran’s biggest crude importer, remain at risk.

Clinton held up Japan as an example, saying it had cut imports despite having suffered a devastating earthquake and tsunami that crippled its Fukushima nuclear reactor. Japan’s cuts of between 15 and 22 percent were enough to get a waiver.

Washington has not stated specifically what cuts it expects from each country, only that they must be substantial.

“We think India, as a country that understands the importance of trying to use diplomacy to try to resolve these difficult threats, is certainly working toward lowering their purchase of Iranian oil,” Clinton said.

“We commend the steps that they have taken thus far. We hope they will do even more,” said Clinton, who was due to meet Indian Prime Minister Manmohan Singh in Delhi later on Monday.

ADEQUATE MARKET SUPPLY

Clinton noted that Saudi Arabia, Iraq and other oil-producing nations were supplying more crude to the markets to offset any loss of supply from Iran.

“If there were not the ability for India to go into the market and meet its needs we would understand that. But we believe there is adequate supply and that there are ways for India to continue to meet their energy requirements,” she said.

She added that the United States would make a decision on whether to exempt India from the U.S. sanctions on Iran in “about two months from now”.

An Indian official privy to the Indian talks with Iran and the United States had earlier expressed hope that Clinton might announce a waiver during her visit. The official said the government had done enough to secure the exemption.

A senior U.S. official said on Sunday that Carlos Pascual, the U.S. special envoy who has been negotiating with Iranian oil importers to cut their imports, would visit India in mid-May to discuss the issue.

Clinton said at the town-hall event that Iran posed a grave threat to the region and that Indians should not view it as a “far-off threat”. Iran had dispatched “terrorist agents” to target Israelis and others in India, she said.

Clinton’s trip coincides with a visit by a large Iranian trade delegation, which is in Delhi to discuss how the two countries can trade via a rupee mechanism set up to skirt sanctions. U.S. officials played down the importance of the Iranian visit.

Trade disputes and frequent U.S. complaints that it is difficult for American companies to do business in India have also strained ties. Ambiguously worded Indian proposals to crack down on tax evasion and tax indirect investments have also alarmed Washington and sown confusion among foreign investors.

Finance Minister Mukherjee announced in parliament on Monday that he would delay by one year, until fiscal 2013/2014, the introduction of the tax evasion measures.

In her meeting with Singh, Clinton was expected to push for the government to open up India’s retail sector to foreign supermarkets such as Walmart – a major economic reform that has stalled and become emblematic of the policy paralysis gripping Singh’s government.

Clinton held talks earlier with Mamata Banerjee, the firebrand chief minister of West Bengal and Singh’s key ally in government, who has blocked the retail reform. Clinton said before meeting Banerjee that she planned to raise the issue but the chief minister said afterwards that it was not discussed.

(Writing by Ross Colvin, additional reporting by Matthias Williams in New Delhi; Editing by John Chalmers and Jeremy Laurence)

India and China Skirt Iran Sanctions With ‘Junk for Oil’

Friday, March 30th, 2012

Bloomberg

By Indira A.R. Lakshmanan and Pratish Narayanan - Mar 29, 2012 4:16 PM PT

Iran and its leading oil buyers, China and India, are finding ways to skirt U.S. and European Union financial sanctions on the Islamic republic by agreeing to trade oil for local currencies and goods including wheat, soybean meal and consumer products.

India, the second-biggest importer of Iran’s oil, has set up a rupee account at a state-owned bank to settle as much as much as 45 percent of its bill, according to Indian officials. China, Iran’s largest oil customer, already settles some of its oil debts through barter, Mahmoud Bahmani, Iran’s central bank governor, said Feb. 28. Iran also has sought to trade oil for wheat from Pakistan and Russia, according to media reports from the two countries.

The trend is growing, sanctions specialists and U.S. officials say, and is denying the Islamic Republic hard currency to prop up the plummeting value of the rial and to fund nuclear and missile programs. Iran already is starved for dollars and euros to support the rial, and barter deals will force it to spend billions of dollars of oil revenue on goods, according to Kenneth Katzman at the Congressional Research Service, a nonpartisan government-research institute in Washington.

“Iran cannot stabilize the value of its currency with such unorthodox payment methods, and that is why its economy is collapsing,” Katzman, an Iran sanctions specialist, said in an interview. “Iran is essentially on a junk-for-oil program.”

Local Currency, Gold

The second-largest producer in the Organization of Petroleum Exporting Countries, Iran said last month it will accept payment in any local currency or gold as new sanctions make it harder for trading partners to pay in dollars and euros.

The barter trend, lawyers and trade analysts say, is exposing an unintended consequence of sanctions. Cutting Iran off from the global financial system, they say, is driving trade into informal channels and producing greater opportunities for corruption and the diversion of funds for illicit purposes.

“Payments through the financial system are easier to police, and there is less scope for corruption,” said Nigel Kushner, a London-based attorney who specializes in Iran sanctions and export controls.

While “the upside of denying Iran access to hard currency for furthering its nuclear program outweighs the downside of decreasing transparency and pushing trade underground, we could be left very much in the dark as to who is dealing with Iran,” Kushner said in an interview.

Harder to Police

“When you force trade out of established channels, you have no way to measure it” or to verify that Iran’s trading partners are abiding by global sanctions regimes, said Barbara Slavin, a senior fellow at the Atlantic Council, a Washington research group.

Iran is feeling the impact of tightened sanctions on finance, insurance, shipping and energy. The Society for Worldwide Interbank Financial Telecommunication, known as Swift, expelled Iran’s central bank and more than 20 other Iranian banks this month, making it almost impossible for Iran to complete large international funds transfers.

The biggest winners in the rise of barter deals with Iran are India and China, the world’s fastest-growing major economies, which now are able to meet some of their burgeoning energy demands by trading rupees and yuan or agricultural and consumer goods, analysts said.

Oil for Electronics

Iran is using yuan paid into Chinese bank accounts to buy Chinese-made washing machines, refrigerators, electronic goods, toys, clothes, cosmetics and toiletries, Katzman said.

Rupee payments to Iran from India may total at least $4 billion a year and will be deposited in India’s state-run UCO Bank (UCO), which doesn’t have U.S. operations and is unlikely to be affected by the global sanctions, according to an official with knowledge of the matter who declined to be named because the information is confidential.

Payments in local currencies such as the yuan and rupee, which are not fully convertible, are less beneficial for Iran than hard currencies such as dollars, euros, and Japanese yen.

Trevor Houser, an energy analyst and partner at the Rhodium Group, a New York-based economic research firm, said paying for Iranian oil in rupees is “a pretty good deal for India, and it’s a pretty bad deal for Iran.” It limits the goods the Persian Gulf nation can buy and “deprives Iran of the hard currency they need for effective monetary policy,” he said in a telephone interview.

Not Violations

India’s $2.7 billion in exports to Iran last year amounted to less than a third of the $9.5 billion worth of crude oil that India bought from the Islamic Republic, meaning it may prove difficult to pay for as much as 45 percent of Iran’s oil exports through barter.

Barter deals themselves don’t violate sanctions provided that no laws are broken, such as dealing with sanctioned banks and companies or providing technology for Iran’s nuclear program, according to three Obama administration officials who spoke on condition of anonymity because of the sensitivity of the issue. So long as countries comply with a new U.S. law by reducing Iranian crude imports, there’s no prohibition on paying for that oil with legal goods and services, the officials said.

If India pays for oil with wheat, one U.S. official said, that’s better than paying the Iranians in dollars or euros they might use to buy additional centrifuges to enrich uranium.

Nuclear Issues

Another U.S. official said the administration has no evidence that any country is using barter deals to conceal increased oil imports from Iran or to trade in illicit goods.

Iran earned about $100 billion from crude oil exports in 2011, according to International Monetary Fund projections. U.S. and EU sanctions imposed since November are intended to squeeze the Islamic Republic’s economy, persuading its leaders to abandon any illicit aspects of its nuclear program.

United Nations inspectors issued a report Nov. 8 raising questions about possible military dimensions of Iran’s nuclear program, adding fuel to U.S., EU and Israeli claims that Iran is seeking to develop nuclear weapons. Iran says its program is strictly for civilian energy and medical research.

China and India have maintained commercial ties with their Persian neighbor even as the sanctions have created obstacles. Trade among the nations dates back 2,200 years to the Silk Route, a trade network spanning Central and East Asia.

While neither China nor Iran has made details of existing barter arrangements public, China’sexports to Iran increased to $14.8 billion in 2011, compared with $900 million in 2001, according to Chinese customs data. China imported $21.7 billion in Iranian oil last year, the figures show.

‘Merchant Mentality’

India exported $2.7 billion worth of goods to Iran in the financial year that ended in March 2011, according to India’s Department of Commerce. Iron and steel articles were the biggest category, accounting for $623 million. That was followed by $454 million in products including inorganic chemicals, precious metal compounds and rare-earth metals, and $419.6 million in cereals.

Seventy Indian business representatives met Iranian companies and officials in Tehran and Tabriz this month to discuss boosting trade, said Anand Seth, spokesman for the Federation of Indian Export Organizations, which organized the tour. The federation, a partnership between private companies and the Indian Commerce Ministry, won’t release the names of the Indian companies for fear of subjecting them to pressures from the U.S., Seth said.

“Barter trade is nothing new for Iran, and the country’s merchant mentality will adapt quickly to the new situation,” Bijan Khajehpour, an Iranian business consultant based in Vienna, said in an interview.

Iran downplays report India paying for oil via Russia

Saturday, October 29th, 2011

Sat Oct 29, 2011 9:19am EDT

* Indian buyers of Iran oil face sanctions-related payment problems

* Debts cleared via Turkish bank, but Iran seeks other options

* Iranian, Indian sources deny news report about Gazprombank

TEHRAN, Oct 29 (Reuters) – An Iranian Oil Ministry source played down on Saturday a report that Indian oil buyers had started paying for their crude through a bank in Russia as a new way to get around sanctions-related difficulties in making international bank transfers.

The semi-official Iranian Mehr news agency said on Friday that importers in India — Iran’s second biggest oil customer after China — were paying off oil debts through Gazprombank .

“There has been no word of this at all … No name has been mentioned, not Gazprom nor any other particular bank. These news reports are not valid,” said the ministry source.

Indian customers accumulated debts of some $5 billion in the first half of this year when the Reserve Bank of India scrapped a long-standing payment system, under pressure from Washington which is trying to isolate the Iranian economy.

It has since paid off the debts through Turkey’s state-owned Halkbank but that conduit remains vulnerable if Washington applies more pressure on Ankara to shut it down.

In the Mehr report, Mohsen Qamsari, deputy head of the National Iranian Oil Company, said Tehran had “reached new agreements for receiving money for Iran’s oil exports,” but he did not specify any banks or countries involved.

“Iran’s central bank has different and diversified ways and methods for receiving its money from selling oil to India … at the moment there is no Indian accumulated oil debt to Iran,” he told Mehr.

An Indian industry source said there had been talks about paying for Iranian oil via Gazprombank but no Indian companies had yet opened an account there and they were still paying through Halkbank.

The Iranian ministry source told Reuters: “Receiving oil money through different methods is being followed up as was always the case.”

Iran is India’s second biggest oil supplier after Saudi Arabia and exports total about $12 billion a year, meeting about 12 percent of India’s import needs. (Additional reporting by Nidhi Verma in New Delhi; Writing by Ramin Mostafavi; editing by Ron Askew)

 

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