Image: Chabahar Port – courtesy The Hindu Online
By Charles F. Moreira, Editor
With the looming re-imposition of US sanctions on Iran coming into effect on 4 November 2018, aimed at killing off Iran’s crude oil exports amongst others, major oil importers such as India, China and Russia are looking at paying for oil in other national currencies.
These impending sanctions follow US President Donald Trump’s announcement in May 2018, that the US would withdraw from its nuclear deal with Iran struck in 2015.
President Trump had threatened countries or companies, that they could face secondary sanctions if they continued to trade with Iran.
Iran is OPEC’s third-largest oil producer and these impending sanctions have intimidated many oil buyers away from Iran’s oil.
Earlier in October 2018, Iran’s First Vice-President Eshaq Jahangiri said the country is ready to counter US sanctions and has already found new partners to buy its oil.
India refuses to kow tow
India is the world third largest oil consumer and according to a Reuters report carried by Russia Today of 8 October 2018, India would continue to import crude oil from Iran despite US threats to penalise companies operating in Iran beyond the 4 November sanctions deadline.
However, India’s Oil Minister Dharmendra Pradhan said that two Indian companies had placed orders to import Iranian crude oil in November and that nine million barrels of oil were expected to be purchased. Also, India’s oil refiners had already imported around 10 million barrels of Iranian crude oil in October.
The Oil Minister told an energy forum in New Delhi that he did not know whether India would receive a waiver from the US sanctions. US Secretary of State Mike Pompeo had said in September that the White House would only consider waivers for Iran’s oil buyers if they pledged to eventually reduce their imports from Iran to zero.
As a result, the Oil Minister said that India was discussing its options with all authorities and that India was considering payment for oil in different currencies, whilst India and Iran reportedly had discussed reverting to payment for oil in rupees after 4 November.
According to the Times of India, an unnamed source had told it that in the past, Iran had on occasions accepted rupee payment for its oil and that Iran had then used the rupees to pay for imports of medicines and other commodities which she needed, so a similar kind of arrangement could be worked out in future.
Also, Indian Oil Corporation Chairman Sanjiv Singh said that his company had recently made some payments in rupees for Iranian oil.
Meanwhile, India and Iran are working on a rupee-rial payment mechanism for the Chabahar port project in Iran, as a means to circumvent the 4 November US sanctions, The Hindu BusinessLine of 19 October 2018 reported. This move would enable India and Iran to begin work on the port project which is critical to Iran’s geopolitical and trade interests.
According to Gopal Krishna, India’s Shipping Secretary, the guarantees will now be given in rupees, instead of US dollars or euros.
This plan for an alternative payment mechanism had been discussed with a high-level delegation led by Mohammad Rastad, Deputy Minister and Managing Director for Ports and Maritime Organisation, Iran, during its visit to India earlier that week and it indicates India’s willingness to proceed with the Chabahar port project should it fail to obtain a sanctions waiver from the US.
These impending sanctions had held up India’s bid to begin commercial operations at the port and this alternative rupee-rial payment arrangement would enable India to proceed with its plans to operate Chabahar port.
In the interim however, India had contracted Bandar Abbas-based Kaveh Port and Marine Services company to run the port for 18 months until India Ports Global Pvt Ltd finalises on a full-fledged manage, operate and maintain (MOM) contractor for the port.
India Ports Global is a 60:40 joint venture between Jawaharlal Port Trust and Deendayal Port Trust. The joint venture was established by India’s government to make strategic investments in ports overseas.
“A rupee-rial payment mechanism is the only way out of this,” said Arun Kumar Gupta, Managing Director, India Ports Global. “That is what we are working on. Instead of dollars or euros, all payments to the Iranian side will be under rupee-rial mechanism,” he said adding that a team from India Ports Global will visit Iran in the next few days to “work out things”.
“Irrespective of the sanctions, we are trying to go ahead with the project; a new payment system will have to be put in place,” he stated.
Chabahar’s strategic importance to India
Besides it’s strategic importance to Iran, Chabahar port is also of strategic importance to India too.
Located in the Sistan-Baluchistan Province on Iran’s South-eastern coast (outside Persian Gulf), Chabahar port is of great strategic importance for development of regional maritime transit traffic to Afghanistan and Central Asia.
“Our government is building a big port at Chabahar. The distance between Mumbai and Delhi is longer compared to the distance between Chabahar and Kandla. In the next two-three months, we will start the port. Gas and power are available at cheaper rate in Chabahar, port is ready and distance is less, but due to international situation and constraints, we are facing problems”, said India’s Shipping Minister, Nitin Gadkari said recently.
“Companies can start manufacturing urea in Chabahar and send it to Kandla by sea and we can reduce the cost by at least 40 %”, Nitin added.
Earlier in May 2016, India Ports Global and Aria Banader Iranian Port had signed a deal to equip and operate container and multi-purpose terminals at Shahid Beheshti – Chabahar Port Phase-I, with capital investment worth US$85.21 million and annual revenue expenditure of US$22.95 million on a 10-year lease.
Huge Iranian oil shipments to China
Meanwhile, China is rushing to import huge volumes of Iranian oil ahead of the 4 November sanctions, according to Russia Today of 19 October 2018.
An unnamed Iranian source had told Reuters that over 20 million barrels of oil had been shipped to the port of Dalian in north eastern China by the National Iranian Tanker Company (NITC) and this huge volume of oil will continue to arrive at Dalian through the rest of October and in early November before the sanctions come into effect.
Statistics show that Dalian, which has some of the biggest refineries and commercial oil storage facilities in China, typically receives between one million and three million barrels of Iranian oil each month.
Iran had previously stored oil at Dalian during the last round of sanctions in 2014. This oil was later sold to buyers in South Korea and India.
Turkey not intimidated
Earlier in 26 September 2018, Russia Today reported Turkey’s President Recep Tayyip Erdogan saying that his country would continue to buy gas from Iran despite US sanctions and threats to penalise countries which trade with Iran.
“We need to be realistic… Am I supposed to let people freeze in winter? Nobody should be offended. How can I heat my people’s homes if we stop purchasing Iran’s natural gas?” Erdogan had told Reuters. Turkey had faced similar situations with Iranian gas imports during the presidency of Barack Obama.
Right now, Turkey is buying 50% of its gas from Russia, whilst it imports the rest from Azerbaijan, Iran, Iraq and Algeria.
The EU circumvents US sanctions
Meanwhile, to overcome US sanctions, the European Union (EU) has been working on a special payments channel for business with Iran.
According to Russia Today of 25 September 2018, EU foreign affairs chief Federica Mogherini said the EU signatories remain committed to the nuclear deal with Iran that the US has pulled out of and that this group is working to create special payment channels to do business with Iran.
Minus the US, the five remaining signatories of the Joint Comprehensive Plan of Action (JCPOA) are Russia, the UK, Germany, China and France, and these five had issued a statement following a ministerial meeting, that Iran had upheld its end of the agreement and Mogherini had read from their statement on the sidelines of the UN General Assembly.
The EU is working to find ways to do business legally with Iran, when the US is trying to impose sanctions which it hopes will stifle Iran’s oil exports altogether.
“Mindful of the urgency and the need for tangible results, the participants welcomed practical proposals to maintain and develop payment channels, notably the initiative to establish a special purpose vehicle to facilitate payments related to Iran’s exports, including oil,” Mogherini said.
