The US has broadly agreed to grant India a waiver from Iran sanctions, which would allow Indian oil companies to continue to import about 1.25 million tonnes of oil a month till March from Tehran, sources familiar with the matter said, adding that an official announcement could come over the next few days.
The US plans to re-impose oil-related sanctions on Iran on November 4 to choke the Islamic Republic’s biggest source of income and pressure it to renegotiate a new nuclear deal. Any country, or company, trading with Iran without US consent after sanctions kick off risks getting cut off from the American financial system.
The US has insisted all along that it wanted everyone to reduce oil imports from Iran to zero eventually, but was open to country-specific waivers that would allow limited imports by those pledging ‘significant’ cut. India and other key importing countries have been engaged for months with the US for a waiver.
“India and the US have broadly agreed on a waiver. India will cut import by a third, which is a significant cut,” a source said.
India had imported about 22 million tonnes of crude oil from Iran in 2017-18 and planned to raise that to about 30 million tonnes in 2018-19. But, as a condition of waiver, Indian oil firms will reduce their imports significantly, the source said. Indian companies can import 1.25 million tonnes a month up to March 2019, the same as they ordered for October and November, the source said. State oil firms are yet to decide on how this quantum will be split between them. A waiver will come as a big relief to Indian Oil and MRPL, the two largest Iranian oil consumers.
How companies will pay for Iranian oil is still being negotiated between India and Iran, sources said, adding that it’s likely that the two countries will stick to the existing mechanism under which 55% of payment is made in euro and 45% in rupee through UCO BankNSE -1.83 %. Under this, rupee is used for import of rice, drugs, and other products from India while the balance proceeds in rupee and euro sit idle in the Indian bankNSE -0.81 % waiting for sanctions to go.
The Indian side, while building its case for a waiver, assured the US that this payment mechanism ensures Iran can’t use oil money from India for any terror-related activity, a key American concern. During the negotiations, India also told the US that it would like to import more American oil if it came on competitive terms, sources said.
India and Iran still have to figure out shipping and insurance details for a smooth trade. Currently, Iran provides its tankers as well as insurance for oil cargoes to India. The US sanctions have driven away Indian and international shippers and insurers from extending their services for Iranian oil imports.
Refineries using Iranian oil have also faced insurance issues during renewals in recent months.
Indian and the US officials have been negotiating for months on terms of waiver from sanctions. India prefers Iranian oil as it comes cheap and suits many refineries’ technical configuration.