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 (Crude tanker. Image Courtesy: IOC)
 
Crude oil-importing Indian public sector oil refineries intend to park proceeds of their respective overseas debt issues in separate accounts. This decision has been taken to avoid any complications that might result from US economic sanctions on Iran. 
Indian Oil Corporation (IOC) and Bharat Petroleum Corporation Limited (BPCL) have already given assurance on these lines to foreign investors subscribing to their respective overseas bond issues launched last week.
IOC says it “intends to set up a segregated account so that funds raised from persons investing in this Offering are not commingled with funds for business activities in any country, or with any individual or entity, subject to U.S. or applicable international trade restrictions, economic 
embargoes and sanctions”. 
In its $900 million offering circular, IOC adds: “Nevertheless, investors in the Notes (bonds) may incur reputational or other risk as the result of the Issuer’s dealings with sanctioned individuals, entities or countries”. 
An identical declaration has been made by BPCL in its $ 2 billion offering circular provided to investors. Both IOC and BPCL import crude from Iran.
On 5th November 2018, the US State Department granted 180-days exemption from sanctions to Indian entities importing crude oil from Iran. This waiver coincided with full-scale re-imposition of the US sanctions on Iran that had been lifted or waived under Joint Comprehensive Plan of Action (JCPOA), which is also known as Iran nuclear agreement. 
As put by IOC, “If the waiver granted to India expires and is not subsequently renewed, or if the Issuer does not comply with the terms of the waiver, and the Issuer (IOC) is deemed to purchase significant amounts of crude oil from Iran, the U.S. Department of State could potentially pursue economic sanctions against the Issuer”.
According to BPCL, the existing US sanctions against Iran, Russia and Iraq present challenges in conducting normal business operations, including international financial transfers. 
It says: “If these sanctions were to expand further, either in severity or in terms of the range of countries applying them, it could have a material adverse impact on BPCL’s ability to conduct business in or with any of these countries”.
IOC has an agreement with National Iranian Oil Company (NIOC) to purchase 7 million metric tonnes (MMT) of crude with an option for additional 2 MMT in the current financial year ending 31 March 2019.
It bought crude from NIOC in three preceding financial years too. Oil supplies from Iran accounted for 6% share in the total crude imports of 66.9 MMT made by IOC in 2017-18.
IOC’s petroleum purchase strategy is to obtain the bulk of its imported crude through term contracts with national oil companies (NOCs) of oil exporting countries. 
As of September 2018, IOC purchased about 74 per cent of its imported crude oil from NOCs of Algeria, Angola, Azerbaijan, Brunei, Iran, Iraq, Kuwait, Qatar, Mexico, Malaysia, Nigeria, Saudi Arabia and United Arab Emirates. The balance 26% of imported crude it purchased under spot contracts. 
IOC diversified its crude import sources during last three years by adding 22 grades of imported crude oil from various origins across the world to the existing 48 grades of crude oil.
As for BPCL, it is expected to buy 10-12 of its total crude imports in 2018-19. It re-started procuring crude from NIOC in 2016-17 after relaxation of sanctions by the United States. Its crude imports from NIOC in 2016-17 and 2017-18 was less than 5 per cent of its total oil procurement
Apart from crude imports, US sanctions against Iran also impact Indian companies for their other business links with Iranian firms. IOC subsidiary, Chennai Petroleum Corporation Limited (CPCL), for instance, has 15.4% equity participation by Naftiran Intertrade Company Limited. It figures in Specially Designated Nationals and Blocked Persons List prepared by The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).
IOC also has 40% interest in Iran's Farsi Block, a huge offshore gas reserve. The project’s exploration period ended on 24 June 2009. IOC says: “Negotiations with Iranian Authorities are in progress for development of the Block”.
The gas in the block was discovered by three-company Indian consortium including IOC more than a decade back. The commercial development of the block has, however, been delayed by Iran. 
Assuming Iran gives the nod to Indian consortium to develop the Block, then its development amidst dynamic US sanctions would be a huge challenge for all stakeholders including EPC contractors & equipment suppliers. 
OFAC considers the re-imposed sanctions as “the toughest U.S. sanctions ever imposed on Iran, and will target critical sectors of Iran’s economy, such as the energy, shipping and shipbuilding, and financial sectors.”
It says: “The United States is engaged in a campaign of maximum financial pressure on the Iranian regime and intends to enforce aggressively these sanctions that have come back into effect.”
In May 2018, President Donald Trump had decided that the United States would not participate in JCPOA. Launched in January 2016, JCPOA is an agreement between Iran and five permanent representatives at UN Security Council plus Germany. The Agreement limits Iran’s nuclear activities and open up its strategic atomic facilities to international inspections.
 
   
 
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