India's Chennai Petroleum will stop processing Iranian crude oil from October to keep its insurance coverage once new sanctions by the United States against Iran go into effect, three sources familiar with the issue said.
US President Donald Trump had in May withdrawn from the 2015 nuclear accord with Iran, re-imposing economic sanctions against the Persian Gulf nation. The US' sanctions on import of Iranian petroleum products will be effective from November 4.
Companies like Indian Oil Corporation, Mangalore Refinery & Petrochemicals (MRPL) and Nayara Energy import Iranian oil because it comes with cheaper freight and longer 60-day credit period. Before the sanctions kick in, Iranian oil exports have dropped significantly as many countries have curbed their purchase under pressure from the US.
This has forced the refiner to cancel a scheduled loading of 1 million barrels in October, they said.
As the US-led sanctions are set to take into effect in November, the Indian government has been ordered to completely wind down its purchases of Iranian oil or risk violating sanctions.
Indian refiners are now using State Bank of India and Germany-based Europaeisch-Iranische Handelsbank AG to buy Iranian oil in euros.
India risks being cut off from the U.S. financial system if it continues to maintain financial transactions with Iran without a waiver.
UCO Bank handled oil payments when the first round of sanctions came into effect in 2011.
"Chabahar is a very important project for us, not only for access to Afghanistan and Central Asia, but also for Afghanistan itself", he said, adding that the development of the port figured in the high-level talks between India and the United States in New Delhi earlier this month. These channels would get blocked from November.
The second source said after the United States announced it would re-impose sanctions in May, Iran has already received payments for some cargoes in rupee. It began clearing the dues in 2015 when the restrictions were eased.
The official said this time around the entire 100 per cent of Iranian oil import bill can be paid in rupees.
Iran is India's third largest oil supplier after Iraq and Saudi Arabia. India is yet to take a call on complying with the USA sanctions on Iran. In 2013-14 and 2014-15, India bought 11 MT and 10.95 MT, respectively from it.
India wants to secure a waiver for imports from the U.S., which is why it has significantly reduced its oil purchase from Iran after the latter's ties with the USA soured.