Iran threatens to cut off oil to India over $5 billion debt

July 19, 2011
Iran may stop exports of oil to India next month if the two nations cannot resolve a financial dispute over payment, according to an Iranian oil official.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, July 19 -- Iran may stop exports of oil to India next month if the two nations cannot resolve a financial dispute over payment, according to an Iranian oil official.

"Iran might stop giving permission to export its oil to India from Aug. 1 if the dispute over receiving payments from India is not resolved," an unnamed oil official told Iran’s semi-official Fars news agency.

The statement appears to contradict an announcement by Mohammad Ali Khatibi, Iran’s governor for the Organization of Petroleum Exporting Countries, that his country would keep supplying oil to India in an effort to ward off predatory efforts by Saudi Arabia (OGJ Online, July 8, 2011).

This recent warning follows a letter sent in late June to Indian refiners by state-owned National Iranian Oil Co. "The warning was not sent by NIOC officially and it was not a warning over stopping exports to India completely," the oil official told Fars.

An Indian refiner acknowledged receiving the earlier letter but said his firm had received no new word from Tehran about the impasse. "So far we have not received any fresh letter from Iran threatening to stop supplies from August," said the official. "Last we heard from them on this issue was in June."

The Central Bank of Iran’s Chief Mahmoud Bahami said India’s debt for oil has reached $5 billion, more than twice the $2 billion that earlier had been estimated for the arrears.

Bahmani said, "Iran's oil customers have unpaid debts…and it usually takes 1 or 2 months to receive their payments. India is one of them.”

Bahmani expressed hope that Iran soon would be able to collect the debt, especially since the two countries have been negotiating to find a way of resolving the matter.

Last December, the Reserve Bank of India stopped payment through the Asian Clearing Union, a Tehran-based institution set up to bypass international restrictions on financial dealings with Iran.

Earlier, Germany allowed India to pay for the oil via the Hamburg-based European-Iranian Trade Bank AG, which handles international trade for Iranian companies. But India halted that outlet in early April after discussions with German Chancellor Angela Merkel, and EIH has since come under European Union sanctions.

In September 2010, the US Treasury added the European-Iranian Trade Bank AG to its key blacklist, saying the bank has provided a financial lifeline to Iranian companies involved in weapons proliferation.

Contact Eric Watkins at [email protected].