In an open display of conciliation with Iran to fend off the Iraq crisis, the US and the European Union has approved the payment of the sixth instalment of blocked oil funds that had been put on hold for more than a month.
India was informed on June 16, the first day of the Vienna talks between the three, that it should deposit $550 million-equivalent dirhams in the Central Bank of the United Arab Emirates and be prepared to pay $1.1 billion more in two equal tranches, payment dates for which would be conveyed later.
Tehran was due to receive the sixth instalment by May 14 but faced delays as nuclear talks last month ran into difficulties, with each side accusing the other of making unrealistic demands in the continuing dialogue aimed at curbing Iran’s atomic programme in exchange for an end to economic sanctions.
The $550 million is part of $4.2 billion in blocked crude oil funds that were to be made available to Iran under the agreement signed with P5+1 (five permanent members of the UN Security Council plus Germany) in November.
The November deal allows Iran to receive $4.2 billion in eight payments over six months in exchange for agreeing to curb its nuclear activities. Iran has so far received $2.55 billion in frozen oil funds, in five payments — four from Japan and one from South Korea.
The seventh instalment, also of $550 million, was due on June 17 while the final $550 million is due on July 20 but contingent on confirmation that Iran has fulfilled all of its commitments.
The payment mechanism, outlined by the Reserve Bank of India, assigns the Indian central bank to identify the Indian oil importing refineries as well as their payment share which would be remitted to UCO Bank. UCO will transfer it to Iran’s Parisian Bank for onward dirham transmission to the Central Bank of UAE.
The payouts by each Indian refinery would be in proportion to their outstanding amount. Indian refiners Essar Oil, Mangalore Refinery and Petrochemicals, Hindustan Petroleum and HPCL-Mittal Energy together owe $3.6 billion to National Iranian Oil Company.
Indian refiners were settling 45% of Iran payments in rupees that Tehran used for importing humanitarian goods from India, while the refiners held the remainder.
However, when three days of negotiations in Vienna between Iran and the P5+1 ended on May 17 with no sign of advance, it asked India for the balance 55%, requesting New Delhi to pay directly to third countries from whom Iran purchased humanitarian goods — food, medicines and medical equipment.
Tehran is now asking for interest on the delayed payments but the RBI said India would not pay any interest as it had been willing to pay since January 2013 but there was no mechanism in place by Iran to remit the outstanding money in foreign exchange.
The tough sanctions slapped by the West on Iran in 2012 closed banking channels for the transfer of oil payments to the Opec member country.
The crisis in Iraq has hurled the US and the EU towards a rapprochement that could end 35 years of hostility with Iran. The signals include moves to strengthen Britain’s diplomatic ties with Iran, including reopening its embassy in Tehran after its closure in 2011.