India’s Oil Secretary S. Sundareshan said on Wednesday that he is “absolutely confident” that the row will be settled. Speaking to Reuters, the most senior bureaucrat in the oil ministry said that there will be no stoppage of crude supplies from Iran.
The two countries are working to sort out the dispute that could block imports of 400,000 barrels per day (bpd) of crude and New Delhi is walking a fine line in balancing its energy needs and global diplomatic interests.
“National Iranian Oil Company is extremely collaborative with us on finding a solution,” Sundareshan said. “We are hopeful that by Monday, Tuesday a solution will be found.”
The two nations have so far not been able to find a solution on how New Delhi should pay for oil imports from Iran after India’s central bank said last month that payments to the Middle East country could no longer be settled using a long-standing clearing house system run by regional central banks.
The decision, taken weeks after U.S. President Barack Obama visited India, was praised by Washington, which said the move would reduce funds available to Tehran to support its nuclear activity, which the U.S. believes is aimed at building an atomic bomb.
India is looking at making payments to Iran for oil shipments through the yen, euro and dirham currencies, R. Gopalan, secretary of financial services in India’s finance ministry, said on Tuesday.
India’s top buyer of Iranian crude, Mangalore Refinery & Petrochemicals Ltd., is seeking as much as 2.6 million barrels from the spot market, in the face of any possible supply disruption due to a payments row between the two countries.
“The MRPL refinery cannot stop functioning so they are preparing for the worst eventuality which is unlikely to happen,” Sundareshan said.
Sundareshan is in Singapore as part of a delegation led by Oil Minister Murli Deora to invite oil and gas exploration companies to bid for energy assets in India as the nation attempts to boost output to meet demand and as production from its aging fields declines.
The secretary said the response of oil companies to participate in the current round of offers has been “very encouraging.”
FREEING DIESEL PRICES
He also said that he is “hopeful” of having a market-based pricing mechanism for diesel in place by the end of 2011. Under recoveries, or revenue losses from selling fuels below cost, would be $14 billion in the year ending March, he said.
These losses are shared by the state-run oil companies and the government. Fuel subsidies cost the government about $3.8 billion a year and are seen as a drain on the treasury.
“My hope is by the end of year 2011 either crude prices will kind of soften or we would find an alternate mechanism so that diesel prices automatically get registered as we go along,” the secretary said.
Indian oil firms last month raised petrol prices by 5.6 percent, but increasing diesel prices could have a broader inflationary impact as farmers and manufacturers pass their higher costs along to consumers.
“Given the current oil prices, it may be a very, very difficult political decision for the government to say that prices of diesel will be market determined,” he said.
Supply disruptions and extreme cold weather in the Northern Hemisphere have pushed oil prices to the highest in more than two years.
Sundareshan also said that the government’s view on the Cairn Energy’s plan to sell stake in its Indian unit will be disclosed by end of January or February.
Last August, Cairn Energy agreed to sell a stake of 40 to 51 percent in its Indian arm Cairn India to Vedanta in a deal worth up to $9.6 billion. (Reporting by Florence Tan and Anuradha Kanwar; Editing by Manash Goswami)
