India could save $8.5 billion in foreign exchange spending on crude oil imports in 2013/14 if it relied more on supplies from Iran, which is able to accept payment in rupees, Oil Minister M. Veerappa Moily said.
Given India’s payment to Iran for its oil is currently being made in rupees, in order to bypass US imposed sanctions on sending euros and dollars to the nation, the rising dollar may make Iran’s oil imports seem more attractive. The increasing imports from Iran could also help arrest the fall of the rupee since oil importing companies wouldn't need to buy as many dollars.
In a letter to Prime Minister Manmohan Singh spelling out a strategy to curb foreign exchange outflow against a backdrop of a weak currency, Moily said India was likely to import about 13 million tonnes of oil from Iran in 2013/14.
It has already imported 2 million tonnes so far in the fiscal year that began in April.
"An additional import of 11 million tonnes during 2013/14 would result in reduction in forex outflow by $8.47 billion (considering the international price of crude oil at $105 per barrel)," the letter, seen by Reuters, said.
The minister said total savings from a number of measures in the energy sector could be in the region of $20 billion.
Moily's proposal chimes with the government's eagerness to boost imports from Tehran to help prop up the rupee, which saw its biggest monthly fall in at least 18 years in August.
US and EU sanctions placed on Iran over its nuclear programme have reduced its oil exports more than half from pre-sanction levels of about 2.2 million barrels per day (bpd).
In the first half of 2013, imports of Iranian oil from its four biggest buyers - China, India, Japan and South Korea - fell more than a fifth from a year ago to around 960,000 bpd.
The U.S. and European Union sanctions have pushed Tehran into accepting payment in rupees for some of its oil, and higher volumes could support the Indian currency.
"Within the UN sanctions and fully complying with the sanctions, there may be more space for imports from Iran," Finance Minister P. Chidambaram said in August.
In the first seven months of this year, India's imports from Iran have declined 46 percent from the same period last year to about 185,700 bpd, a trade data showed.
India imported nearly 58 percent more oil from Latin America in the January to July period as its Iranian shipments dropped.
Overall, Asia's third-largest economy shipped in 14.1 percent more oil in July than a year ago, while imports for the January-July period rose about 10.3 percent, the data showed.
With inputs from Reuters