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India’s largest bank, State Bank of India, has told local refiners that it will no longer handle payments for oil imports from Iran beginning in November, the head of finance at Indian Oil Corp (IOC) told Reuters on Friday.
According to IOC and other refiners, the companies in India currently use the State Bank of India (SBI) and Germany-based Europaeisch-Iranische Handelsbank AG (EIH) to purchase oil from Iran in euros.
“[Oil] loading will be affected from end-August under the current mechanism unless a new payment route is established,” IOC’s finance chief A.K. Sharma told Reuters in a telephone interview today.
Speaking to India’s Economic Times, Sharma said:
“Once the current payment channel is blocked, supplier [Iran] has to decide if it wants to trade with us in rupee or sell oil on credit in anticipation of channels re-opening in future.”
Iran currently offers a 60-day credit period for its exports to India, so cargoes loaded at the end of August will be due for payment in November.
According to analysts, Iran may have to offer more incentives to India to entice one of its biggest customers to continue buying its oil. One possible concession that India could ask for is a discount instead of credit period for payments, Sri Paravaikkarasu, head of East of Suez Oil at consultancy FGE, told Reuters.
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India is Iran’s second single biggest customer after China. India’s oil import from Iran jumped last month to their highest since October 2016 to around 705,000 bpd, but expectations are that Indian imports will start dropping from this month because at least two large refiners are said to be getting ready to cut imports from Iran.
Nayara Energy—formerly known as Essar Oil—is said to have started scaling back oil purchases from Iran this month, while another big Indian refiner, Reliance Industries, which owns the world’s largest refining hub and has significant exposure to the U.S. financial system, is reportedly planning to stop importing oil from Iran in October or November.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.