India plans to clear some pending oil payments to Iran through the United Arab Emirates central bank, three sources with knowledge of the matter said, under an interim nuclear deal that has allowed Tehran access to $4.2 billion in blocked funds globally, Reuters reported on June 19.
The mechanism reflects a U.S. insistence that the transfers can be closely tracked. Payments would reward Tehran for cooperating in nuclear talks that, if successful, would return Iran to the international fold after decades of isolation.
Despite some signs of improving relations between Washington and Tehran, a full deal over Iran's nuclear activity remains elusive.
Iran and six world powers re-launched talks on June 17 to try to salvage a deal on Tehran's nuclear activity by a July 20 deadline.
Iran's earlier request to repatriate $1.65 billion in Omani Rials through Bank Muscat proved not to be workable. It was not known why that channel was not utilized.
Under the proposed new arrangement, the Reserve Bank of India would buy the dollars from authorised currency dealers, instead of the Indian oil buyers tapping the currency market, the sources said. The UAE central bank would then remit the funds to Iran in dirhams, the sources said.
The UAE central bank and the U.S. Treasury department's Office of Foreign Assets Control did not immediately respond to requests for comment. No comment was available from the RBI.
The sanctions slapped on Iran in 2012 closed banking channels for the transfer of oil payments to the OPEC member country, choking off its revenues, crippling the economy and ultimately bringing it to the negotiating table.
The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury has informed India that Iran would like to receive $1.65 billion in three equal installments through the UAE central bank, the sources said.
"It is indeed a complex mechanism but it has been devised to bring in transparency in the money transfer to Iran," said one of the sources, all of which declined to be identified as they were not authorised to speak to media.
In a first step, India's petroleum ministry would instruct oil refiners to remit funds in rupees to the account of an Iranian bank with India's state-run UCO Bank.
UCO would then transfer the sum to the RBI for crediting to a new rupee account held by the UAE central bank.
Once this step is completed, the UAE central bank would make a payment in dhirams to the Iranian central bank. On receipt of payment confirmation, the RBI would credit the UAE account with an equivalent sum in dollars.
The RBI would then settle its dollar purchases with the funds on the UAE rupee account.
Indian refiners Essar Oil, Mangalore Refinery and Petrochemicals Ltd, Hindustan Petroleum Corp and HPCL-Mittal Energy Ltd. together owe about $4 billion to National Iranian Oil Co, an MRPL executive said last month.
In the first two installments, Mangalore Refinery and Petrochemicals would pay about $238 million, Essar Oil $232 million, Indian Oil Corp $57 million, Hindustan Petroleum about $8 and HPCL Mittal about $15 million.
"The respective payments by the four refiners will be same for the first two installments. Numbers for the third installment are yet to be worked out," said one of the sources.
India has been settling 45 percent of Iranian oil payments by transferring rupees into Iran's account with UCO Bank, while the refiners hold the remainder. Tehran is using the funds in UCO Bank to import goods from India.
India, which imports a total of 4 million barrels per day of oil, has been steadily reducing its dependence on Iran, whose share in its overall oil imports has fallen by two-thirds over the last five years to 5.7 percent in 2013/14.