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China, India Exposed To Sanctions
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India does not figure in a list of 11 countries, mostly Europeans, identified by the US that would not be subject to American sanctions because of significant reduction in purchase of crude oil from Iran.
However, the 15 percent cut sources say India is privately demanding from state-run refiners could help it qualify for such an exemption. Reuters' calculations show the overall cuts refiners are planning to make could be deeper at around 20 percent.
"I am pleased to announce that an initial group of eleven countries has significantly reduced their volume of crude oil purchases from Iran - Belgium, the Czech Republic, France, Germany, Greece, Italy, Japan, the Netherlands, Poland, Spain, and the United Kingdom," Secretary of State Hillary Clinton said on Wednesday.
"It's a sensitive matter," said an Indian government official who declined to be identified because he was not authorised to speak to the media. "You won't get to know. To keep it secret we are sharing information and minutes of the key meetings over the phone instead of exchanging or sending letters."
Written communication that was sent has been tightly guarded. "The letters were being sent like those in the British Raj," another government official said. "Properly sealed with melted wax and in double envelopes as this is a very sensitive issue. Marked as 'To be opened by addressee only.'"
Indian state refiners planning to cut the size of their term deals with Iran have sought additional supplies from the world's top oil exporter, Saudi Arabia, and fellow OPEC member Iraq.
MRPL, India's largest Iranian oil buyer, plans to cut its imports by as much as 44 per cent to 80,000 barrels per day (bpd) for the fiscal year starting on April 1.
While these moves contrast with India's public stance that it is free to take oil on offer by Iran, one analyst said the government was lining up with the United States and the EU.
"This government...has arguably been more pro-US than any other government has been," said Paranjoy Guha Thakurta, a political commentator in New Delhi told Reuters.
"Despite its public position, the Indian government and its policies are aligned to the US and EU."
Clinton said she will report to the Congress that sanctions under the National Defense Authorization Act for 2012 will not apply to the financial institutions based in the 11 countries, for a renewable period of 180 days.
Observing that the actions taken by these countries were not easy, Clinton said they had to rethink their energy needs at a critical time for the world economy and quickly begin to find alternatives to Iranian oil, which many had been reliant on for their energy needs.
Besides India, China and South Korea are other major countries which do not figure in this list.
China slashed its crude oil imports from Iran by half in February from December levels to pressure Tehran in a contract dispute.
February was the first month to reflect the full scale of the cuts in China's imports of Iranian oil after top refiner Sinopec Corp decided in December to chop purchases in an attempt to force Iranians to back off from the tougher terms they had proposed for the 2012 contract.
The February imports at about 290,000 barrels per day are about half of December's 572,800 bpd, 41 percent less than the January level and down 40 percent from February 2011, data from China General Administration of Customs showed on Wednesday, largely matching earlier Reuters reports.
The sharp drop in Chinese imports adds to trade pressures on Iran stemming from US and European Union sanctions over its nuclear enrichment programme. The West fears it could lead to nuclear weapons, while Iran says it is intended for power generation.
A senior State Department official said the US is in conversation with India, China and Korea in this regard.
The decision means banks in the 11 countries have been given a six-month reprieve from the threat of being cut off from the US financial system under new sanctions designed to pressure Iran over a nuclear program the West suspects is intended to produce weapons.
Japan, China and India combined buy close to half of Iran's crude exports of 2.6 million barrels a day, providing crucial foreign exchange for the OPEC member.
But the US sanctions and an EU oil embargo have cut Iran out of financial networks, making it difficult to transfer funds to pay for trade and disrupting some oil shipments because of the difficulty of securing shipping insurance. Domestic prices in Iran have spiraled higher and the rial has slumped in value.
Japanese Finance Minister Jun Azumi welcomed the US decision, saying on Wednesday that Japan would continue to cut its imports of Iranian oil at a set rate in the future.
"The decision takes account of Japan's steps on Iranian oil, including its future response," he told reporters.
Indeed, Japan's government wants the nation's crude buyers to cut Iran imports by 10 per cent to 20 per cent a year, Akihiko Tembo, the chairman of the Petroleum Association of Japan, said.
Steps Behind The Scenes
The behind-the-scenes moves from India have not gone unnoticed by the United States. "With respect to India, they are making steps that are heading in the right direction," US Secretary of State Hillary Clinton told lawmakers in February.
"In fact, I think in a number of instances, the actions of countries and their banks are better than the public statements that we sometimes hear them making," Clinton said.
The US sanctions target financial transactions with Iran and recent European Union measures also make shipping to and from the Islamic republic difficult as the western powers pressure Tehran over its nuclear ambitions.
Iran, the biggest oil producer in OPEC after Saudi Arabia and the world's fifth-largest oil exporter, says its nuclear programme is purely for peaceful purposes.
India has been dancing around the restrictions as its public stance implies it does not expect a waiver. Shippers are looking for sovereign guarantees for their vessels or for Iran to take on the freighting charges.
The latest twist in India's search for a way to pay for Iran's crude is a semi-barter arrangement using the rupee, which is not freely traded on global markets, for just short of half the imports - worth about $5 billion.
New Delhi hopes to take this opportunity to boost exports to Iran from around $2.7 billion last year, which could be paid for from the refiners' rupees - to be held in an account with UCO Bank, which has virtually no business with the United States.
But a recent trip by exporters to Iran to explore sales with rupee payment appears to have had little success, with deals for sugar and soymeal immediately afterwards sealed in dollars paid through middlemen in Dubai.
India has stayed in close contact with the United States at every turn in the tale, with a move to use Iran's privately-run Bank Parsian instead of Tehran's newly-sanctioned central bank coming hot on the heels of a diplomatic visit.
One of the industry sources said the request to switch banks came around the time that India's foreign secretary visited the United States in February.