RBI's sudden move, which came without either the oil industry or the government being consulted, would mean that India cannot import 10 million barrels of crude oil contracted from Iran for January, a replacement of which cannot be found easily.
India may face fuel supply shortages next month after Reserve Bank of India (RBI) stopped facilitating payments for Iranian crude imports, which make up for 12% of the nation's oil needs.
RBI's sudden move, which came without either the oil industry or the government being consulted, would mean that India cannot import 10 million barrels of crude oil contracted from Iran for January, a replacement of which cannot be found easily.
"There is a huge crisis staring us. The RBI has without putting in place an alternative payment mechanism suddenly withdrawn from a system that was running fine since 1976," an oil industry official said.
"You simply cannot find replacement of such a huge quantity so easily. Plus, once the market comes to know of such a huge requirement, the already firm crude prices will shoot through the roof," he said. "There is bound to be some effect."
The RBI on December 23 said oil and other import payments to Iran will have to be settled outside the existing Asian Clearing Union (ACU) mechanism, which involves the central banks of India, Bangladesh, Maldives, Myanmar, Iran, Pakistan, Bhutan, Nepal and Sri Lanka.
Under the ACU mechanism, imports by the nine nations are settled every two-months with every member paying for imports after netting out its exports among the union.
Till 2008, payments under the ACU mechanism was done in US dollars but after United States imposed sanctions against Iran over its suspected nuclear programme, the currency shifted to Euro.
United Nations sanctions do not forbid buying Iranian oil and recently the European Central Bank (ECB) asked RBI and other central banks of ACU to provide certificates that the Euro being used to import products are not on US sanctions list.
Sources said while certification for crude oil imports was easy to provide and track, RBI chose to scrap the entire system itself.
In the absence of ACU, Iran and its crude supplier National Iranian Oil Co (NIOC) are jittery over sales without being backed by the sovereign guarantee of the central bank.
Also, oil firms will have to find an alternative European bank which can accept payments on behalf of NIOC.
Sources said realising the impact of the move, top RBI officials will meet their Iranian counterpart within 2-3 days in Mumbai to finalise a panel of banks through which payments can be made.
India imported 21.3 million tons of crude oil from Iran in 2009-10 and this year imports are expected to be around 18 million tons as Reliance Industries has totally stopped using crude oil from the Persian Gulf nation.
Mangalore Refinery and Petrochemicals Ltd (MRPL) is the biggest importer of Iranian crude oil with 7.1 million tons of contracted quantity. Mumbai-based Essar Oil imports roughly 3 million barrels per month (5-5.5 million tons a year), Indian Oil Corp 3.5 million tons and Hindustan Petroleum Corp about 3 million tons.
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