India has asked its refineries to stock up on dollar and euro reserves in overseas accounts to avoid a run on the rupee in the event of having to pay back Iran more than $6 billion in outstanding debts.
Indian refiners currently owe the money for oil imports after payment was stopped in February 2013 under intensified US and European sanctions on Iran.
Indian Oil, Essar Oil and Mangalore Refinery & Petrochemicals, Hindustan Petroleum Corp Ltd (HPCL) and HPCL-Mittal Energy Ltd (HMEL) have imported oil from Iran.
India fears a possible deal in the ongoing nuclear negotiations with Iran and New Delhi’s obligation to suddenly buy $6 billion could pressure the rupee if Tehran asks it to clear the debt.
“In the eventuality of an agreement being reached between P5+1 and Iran by June 30, Iran may request for repatriation of these dues,” Indian media on Tuesday quoted a Petroleum Ministry directive to the five refiners as saying.
“Depending upon the terms and conditions of the agreement, the payment may be in one go or could be staggered over time, maybe spread over a few weeks,” it said.
The directive asks the refineries to “to earmark the required Indian rupees for meeting their dollar liability” to avoid a pressure on the rupee if they are asked to clear the debt immediately.
“They may buy forex in the spot/forward market in an incremental manner so as to build up the required dollar/euro balance,” the directive says.
India pays 55% of its debts to Iran for oil purchases in euros and the rest in rupees.
Payments in euro through Turkey’s Halkbank were halted in February 2013 under US pressures, leading to the current debt. Only 45% of the debt has been cleared in rupees through UCO Bank.
Iran’s Government spokesman Mohammad Baqer Nobakht said in May India’s dues stood at $8.8 billion.
Another $3 billion has been paid by India in several installments as part of a preliminary nuclear agreement between Iran and the P5+1 group of countries.