India Said to Be Told Turkey May Stop Routing Iran Oil Shipment Payments

By Pratish Narayanan and Anto Antony - Jan 10, 2012 5:16 PM GMT+0700

Turkiye Halk Bankasi AS (HALKB) told Indian oil (IOCL) refiners it may no longer be able to be an intermediary for their purchases of Iranian crude, four people with knowledge of the matter said.

Executives from the crude-processing companies met with Indian oil ministry officials yesterday to discuss alternatives, including routing remittances through Russia, the people said, declining to be identified because the information is confidential. Other options include stopping purchases from Iran altogether and importing from other countries, they said. Indian officials are scheduled to visit Tehran for trade talks starting Jan. 16, two of the people said.

“This is a serious issue,” Praveen Kumar, an oil and gas analyst at Facts Global Energy in Singapore, said in a telephone interview. “India doesn’t seem to have a plan B at the moment. The refiners will be worried about what they are going to do.”

Mangalore Refinery & Petrochemicals Ltd. and Hindustan Petroleum Corp. (HPCL) are among Indian buyers struggling to find lenders willing to handle payments to Iran because of sanctions against banks in the Gulf state. Saudi Arabia will increase crude exports to some Indian refiners this year as they seek to diversify supplies, four people with knowledge of the plans said Nov. 15. Indian Prime Minister Manmohan Singh discussed alternative financial conduits with Russian officials during his visit to Moscow in December.

Strait of Hormuz

The European Union will discuss imposing harsher sanctions on Iran, including a ban on crude imports, in response to the country’s nuclear program when the bloc’s foreign ministers meet on Jan. 30. Iranian Vice President Mohammad Reza Rahimi said Dec. 27 that his nation would block fuel shipments through the Strait of Hormuz, a transit point for a fifth of the world’s oil, if penalties are imposed, according to a report by the Islamic Republic News Agency.

Crude rose as much as much as 1.5 percent to $102.87 today in New York, extending this month’s gain to almost 4 percent.

“The supply side shock potential is keeping the oil price where it is,” said David Lennox, a resource analyst at Fat Prophets in Sydney who forecasts New York crude will average $110 this year.

India, which got 11 percent of its crude imports from Iran last year, is exploring the option of making payments for Iranian crude through Russia’s Gazprombank OJSC (GZPR), though no deal has been reached, three of the people said yesterday. OAO Gazprom (GAZP), the world’s biggest natural gas producer, owns about 42 percent of Gazprombank, according to the lender’s website.

Avoiding Sanctions

Andrei Serov, a Moscow-based spokesman at Gazprombank, wasn’t available for a comment at his office because of a holiday in Russia.

“Russia has stayed away from sanctioning Iran, so this route might just work for India,” Facts’ Kumar said.

Bharat Petroleum Corp. (BPCL), or BPCL as India’s second-largest state refiner is known, planned to pay Iran for crude purchases by using the accounts of other government-run processors at Halk Bank, three people with knowledge of the situation said Dec. 21. That plan has now been rejected by the Turkish lender after BPCL made some payments, three of the people said yesterday.

Nobody answered a phone message left by Bloomberg News yesterday at Halk Bank’s office in Ankara.

BPCL, which started buying about 20,000 barrels a day of Iranian crude through a term contract in September, is considering whether to stop taking supplies, they said. Other Indian companies that buy Iranian crude include Essar Oil Ltd. (ESOIL) and Indian Oil Corp.

Contract Renewals

Term contracts for other Indian buyers of Iranian crude run from April to March, the people said. The refiners have yet to renew their deals for the next financial year, they said.

Indian refiners’ debts to Iran for purchases rose to as much as $5 billion in July, the Islamic Republic News Agency cited Central Bank Governor Mahmoud Bahmani as saying. The outstanding payments threatened to jeopardize about $9.5 billion in annual trade between the nations, with Iran telling customers they wouldn’t receive August shipments unless the bills were paid, according to the Fars news agency. The refiners started clearing the outstanding payments in August after Halk Bank agreed to make transfers.

U.S. President Barack Obama on Dec. 31 signed into law measures that deny access to the U.S. financial system to any foreign bank that conducts business with the central bank of Iran. The law includes language that allows the president to waive the sanctions if he determines they would threaten national security.

To contact the reporters on this story: Pratish Narayanan in Mumbai at pnarayanan9@bloomberg.net; Anto Antony in New Delhi at aantony1@bloomberg.net

To contact the editors responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net; Chitra Somayaji at csomayaji@bloomberg.net