India Vows Cuts in Iranian-Oil Imports as Clinton Visits

India will curtail its imports of Iranian oil by 20 percent, officials said, as U.S. Secretary of State Hillary Clinton held talks in New Delhi to enlist India’s help with sanctions aimed at pressuring Iran over its nuclear program.

Asia’s third-biggest oil importer will cut purchases of crude from Iran to 14 million tons from 17.5 million tons in the 12 months ending March 31, according to two Indian diplomats and two refinery officials who asked not to be identified because they weren’t authorized to speak publicly. The officials said Iranian crude would account for 7 percent of India’s imports in fiscal year 2013, down from 10 percent currently.

India is “certainly working toward lowering their purchase of Iranian oil” and “we hope they will do even more,” Clinton told a gathering of students and civic leaders in the eastern Indian city of Kolkata yesterday, before flying to New Delhi for government meetings. The U.S. believes that there is sufficient production from Saudi Arabia, Iraq and other Persian Gulf nations for Iran’s customers to find alternate suppliers, she said.

In their meetings, Indian Prime Minister Manmohan Singh, National Security Adviser Shivshankar Menon and Clinton agreed that Iran must fulfill its United Nations obligations to abandon any possible military dimensions of its nuclear program, according to a State Department official present at the talks who spoke on condition of anonymity.

European Embargo

The top U.S. diplomat also urged its South Asian ally to abide by U.S. sanctions that will penalize financial institutions doing business with Iran in nations that fail to “significantly reduce” purchases of Iranian oil before a June 28 deadline.

U.S. sanctions have been an irritant in relations with New Delhi, which was the second-biggest buyer of Iranian oil last year. India imports almost 80 percent of its crude and has growing demands for an economy forecast to expand 7.3 percent in the year through March 2013, making energy security a top government concern.

India says it has been steadily reducing its dependence on Iranian oil even as its energy needs grow. More than 16 percent of India’s oil, or 21.8 million tons, was sourced from Iran in fiscal year 2009, compared with 17.5 million tons or 10 percent of total imports this fiscal year, according to two Indian officials.

Iran Factors

While India has abided by several rounds of UN sanctions on Iran, it has publicly criticized unilateral American sanctions as an infringement on its sovereignty. U.S. and Indian officials say that while Singh’s administration doesn’t want to isolate Iran, an important trading partner and a route for India into Afghanistan, the government in New Delhi is quietly cooperating with oil sanctions and seeking an exemption from the U.S. penalties on financial transactions with Iran.

The U.S. law, along with a European Union oil embargo that takes effect July 1, are pillars of a campaign intended to squeeze Iran’s main source of revenue to force it to meet international demands over the country’s nuclear program. The U.S., Europe and Israel say the program is a cover for developing an atomic weapons capability. Iran says it’s for civilian energy and medical research.

Representatives of the five permanent members of the UN Security Council -- the U.S., Britain, France, China, Russia -- and Germany plan to meet with Iranian officials again in Baghdad on May 23 in an effort to craft a negotiated settlement.

Sanctions Exemptions

“India, China, Japan, European countries who are the primary purchasers of Iranian oil are being asked” to deny Iran its main source of revenue to create more leverage in the talks, Clinton said.

In March, the U.S. issued renewable, 180-day exemptions from sanctions to 10 EU nations and Japan, crediting them with significantly reducing imports of Iranian crude.

Carlos Pascual, the U.S. special envoy in charge of negotiations with the 12 Iranian oil importing nations that haven’t yet been granted exemptions, will follow up on Clinton’s visit with a mission to New Delhi this month.

Clinton said it was too early to tell whether India would earn an exemption.

An array of financial sanctions imposed in the last year have made it difficult for Iran’s customers to find banks to settle payments for Iranian oil. A request from Iran’s Parsian Bank to open an office in Mumbai was rejected because of U.S. pressure, two people with knowledge of the matter said yesterday.

In a workaround to pay for Iranian oil without running afoul of sanctions, Indian officials are establishing a rupee account at state-run UCO Bank (UCO) that Indian refiners can use to pay for as much as 45 percent of Iranian oil purchases -- and which Iran may then use to purchase Indian goods in rupees.

Iranian Trade Delegation

Clinton’s trip to New Delhi coincides with the visit of an Iranian trade delegation to discuss the arrangement. Since the goods under discussion are foodstuffs and other non-strategic items, the U.S. doesn’t have a problem with the arrangement, as long as it doesn’t violate any sanctions, according to three U.S. officials who spoke on condition of anonymity.

India has supported negotiations by the U.S. and the other permanent members of the UN Security Council to persuade Iran to accept a deal to abandon illicit aspects of its nuclear program, according to U.S. officials.

Clinton and Singh discussed strategic cooperation on a number of other issues. Clinton briefed Singh on efforts to stabilize Afghanistan after the withdrawal of NATO combat troops in 2014, and welcomed his support for development in Afghanistan, including plans to host a conference in June to attract private sector investment, according to the State Department official in the meeting.

U.S.-India Trade

India has a $2 billion economic assistance program in Afghanistan, and a government-backed consortium of seven Indian steel companies has won the rights to invest $7.8 billion in Afghanistan’s Hajigak iron deposit.

U.S. and Indian officials discussed efforts to expand bilateral trade, which rose 18 percent to $57.8 billion in 2011 compared with the previous year, according to official data. Clinton also is pressing for better terms for U.S. companies investing in India’s retail, defense and civilian nuclear sectors, according to the U.S. official in the talks.

In Kolkata, Clinton told listeners at a televised town-hall style meeting that Pakistan had not done enough to bring to justice the perpetrators of the 2008 terrorist attacks on Mumbai. Clinton said she had authorized a $10 million reward for information leading to the capture of Hafiz Saeed, the Islamist militant blamed for masterminding the coordinated attacks by Pakistan-based gunmen that killed 166 people in India’s financial capital.

Economic Reforms

Clinton also said that Egyptian cleric Ayman al-Zawahiri, who became the leader of al-Qaeda after the killing of Osama bin Laden, “is somewhere we believe in Pakistan.”

Clinton met West Bengal Chief Minister Mamata Banerjee, a power broker in parliament who has opposed economic reforms championed by the ruling Congress Party. The U.S. is seeking progress on Singh’s efforts to loosen restrictions on foreign investment in the finance sector and permit large foreign multi- brand retailers, such as Wal-Mart Stores Inc. (WMT), to enter the Indian market.

In New Delhi, Clinton called on Congress Party leader Sonia Gandhi, and today will confer with Foreign Minister S.M. Krishna with opposition leader Sushma Swaraj.

To contact the reporter on this story: Indira A.R. Lakshmanan in Washington at ilakshmanan@bloomberg.net

To contact the editors responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net; John Walcott at jwalcott9@bloomberg.net

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