NEW DELHI, July 1, (Agencies): Iran has threatened to halt oil supplies to India in August as it presses New Delhi to solve a payments dispute that has cast a shadow since December over the two countries’ $12 billion annual crude trade.
National Iranian Oil Co (NIOC), the state oil firm that supplies around 12 percent of India’s oil imports, set the deadline in a letter dated June 27 to Indian refiners, sources at the refiners and NIOC told Reuters on Friday.
But Iran might be leery of losing market share in its second-biggest customer with Saudi Arabia already offering India up to 2.6 million barrels — some 3 percent of the fast-growing Asian giant’s imports — as extra supplies for July.
“It’s just their way of trying to put the ball back in the court of the Indian government so that they make a decision, because they don’t want to be left hanging,” said Praveen Kumar, head of South Asia oil and gas consulting at FACTS Global Energy.

“This is not something that the Iranians would like to do.”
Iran, facing increased isolation internationally, and energy-hungry India have been looking to resolve an impasse triggered in December when the Reserve Bank of India ended a regional clearing mechanism under US pressure.
“This is the first time they have written a letter to halt supplies, otherwise they were regular. We hope that a decision on a new payment mechanism would be taken by mid-July,” a source at state-owned Mangalore Refinery and Petrochemical Ltd (MRPL) said.
Two Iranian industry officials confirmed sending a letter to Indian refiners.
“We regret to inform you that NIOC would hardly be in a position to deliver the Iranian crude oil to our partners in India ... in August 2011 unless concrete solutions are worked out for remittances of NIOC’s dues,” the letter said, according to two sources who have seen it.
A source at NIOC said it hoped to reach a solution soon.
“We have a very good relationship with all the refiners in India,” said the NIOC source. “We want to come to a agreement on this problem.”
Analysts say Iran is putting pressure on India to accelerate the resolution of the payments mechanism dispute.

India owes Iran $2 billion for oil imports in recent months, Seyed Mohsen Ghamsari, executive director for international affairs at NIOC said on May 31 after a meeting with Indian officials in New Delhi.
“Iran has really been feeling the cash flow pinch recently from not having received most of the payments for Indian exports for many months now, so it is perhaps not surprising they are trying to pressure their counter parties into finding a solution,” said Samuel Ciszuk, Senior Middle East & North Africa¬†Energy Analyst at IHS Energy.
“Iran is putting pressure on the Indian government. But Saudi is there to offer additional volume ... So if Iran loses India, it is a loss of a big chunk of the market and it can be a double whammy for Iran.”
Saudi Arabia is lifting output after Iran and others blocked a wider oil supply boost at the June 8 meeting of the Organization of Petroleum Exporting Countries.
A source at Hindustan Petroleum Corp said his company would increase supplies from term volumes instead of tapping the spot markets if Iran cut off shipments.
Earlier this year, Germany allowed India to pay for the oil via Hamburg-based EIH bank, which handles international trade for Iranian companies.
But India halted that conduit in early April after discussions with German Chancellor Angela Merkel, and EIH has since come under EU sanctions.

Analysts view
Praveen Kumar
“It’s just their way of trying to put the ball back in the court of the Indian government so that they make a decision, because they don’t want to be left hanging. This is not something that the Iranians would like to do”, says Praveen Kumar, head of South Asia Oil and Gas, facts Global.
“Even if you diversify from Iran to Saudi Arabia, it’s a risk because you don’t know how long the offers for additional barrels will be there and you don’t know about the price either.”
“It’s a political move because the party at the other end seems to be getting quite frustrated, and this is their way of stepping on the accelerator and say you owe me some money.”
“India is buying time and Iran is pushing them to decide.”

Samuel Ciszuk
“Iran has really been feeling the cash flow pinch recently from not having received most of the payments for Indian exports (and other exports, too) for many months now, so it is perhaps not surprising they are trying to pressure their counterparties into finding a solution.”, says Samuel Ciszuk, senior analyst, IHS energy.
“The Iranians need to export crude. The dispute is on-going for a while now and it is now billions that India owes Iran. Iran is putting pressure on the Indian government. But Saudi is there to offer additional volume to Asia. So Iran has to put pressure on India but they do not want to put too much pressure on India.”

“India is a big market to Iran. Lots of Indian refineries are geared to take heavy Iranian crude, which is the toughest one to market. So if Iran loses India, it’s a loss of a big chunk of the market and it can be a double whammy for Iran. Rumour is a lot of other payments are not reaching Iran. But obviously, India represents one of the biggest chunks. They are selling crude in credit basically, until a new payment mechanism is agreed and established.”
On market impact: “Not for now - as long as Iran continues to deliver.”
David Cohen
“I would imagine that it would involve some sacrifice, in that they would have to take a lower price to find new customers in place of India”, says David Cohen, Director, Asian Economist, Action Economics.
“It is not that they would not be able to sell any of that oil, but they would probably have to accept a lower average price if they are going to forego sales to what you point out is one of the biggest consumers in the world.”

Carl Larry
“I think that this is quite possible and it would be a nice way to get back at the IEA and the Saudis for stepping outside the OPEC bounds. Iran could say, look this is an internal matter, but if they run in to a shortage, your (IEA) oil should make up the difference anyway”, says Carl Larry, Director Energy Derivatives, Blue Ocean.
“These things usually get resolved, but the risk is more than real and I think there are lot more reasons for Iran to do this than just play chicken.”