Indian Oil Giant Optimistic Over Iran Supply Problem

India's biggest oil refiner said Thursday it did not expect any supply shortages because of a payments problem between India and Iran, but other refiners are making contingencies in case of disruption.

In December, India's central bank said payments to Iran -- India's second biggest supplier of crude -- could no longer be settled through a long-standing clearing house system because of sanctions.

The abrupt move to block the Asian Clearing Union (ACU) mechanism, which was run by the central banks of India and other south Asian countries, left Indian oil companies without a way to pay for their supplies.

A temporary arrangement has been found using the State Bank of India and the European-Iranian Trade Bank, or EIH Bank, but both countries are seeking a long-term solution.

Asked about possible problems, S.V. Narasimhan, the finance director of IndianOil, the largest refiner in India, said Thursday: "We don't anticipate any disturbances."

Another refiner, Mangalore Refinery and Petrochemicals Ltd (MRPL), has begun making contingencies, however, and has floated four tenders for supplies in the short-term from other sources.

MRPL is India's biggest buyer of Iranian crude, with more than half its supply coming from the Islamic republic.

Supplies from Iran are still normal, "but there's no guarantee (that normal supplies) will continue," a senior MRPL executive, who didn't wish to be named, told Dow Jones Newswires on Wednesday.

Indian Oil Minister Murli Deora has said India expects to resolve the issue permanently in the next few days.

"We can look at making the temporary arrangement more permanent if it works out. An Indian delegation will be visiting Tehran soon to discuss the issue," a finance ministry official said.

In June, the United Nations approved a fourth round of sanctions against Iran over its disputed nuclear program, while the United States and the European Union imposed additional restrictions.

Under the ACU mechanism, payments to Iran were made in euros which were subject to ever-tightening regulations from the European Union designed to cut off funding to Tehran.

Iran has reportedly told India that it would be prepared to accept future payments in rupees.