India runs the risk of a crude oil shortage next month that could spill over to its 36,000 petrol pumps after the Reserve Bank of India stopped payments in US dollars and the euro through the traditional mechanism to pay for imports from Iran. 
The central bank took the sudden decision last week under American pressure without consulting local crude oil importers or putting in place an alternative method for making payments.
Iran accounts for 12 per cent of India’s crude oil imports of roughly 160 million tonnes a year.
In Delhi, a petroleum ministry official tried to play down the possibility of a crisis by saying the country had crude reserves to support 74 days of consumption. However, he admitted that it could snowball into a full-blown crisis if no solution was found to the payment problem.
The official said the oil ministry had not been consulted before the RBI ordered the halt to payments through the Asian Clearing Union (ACU), an arrangement allowing participants in an intra-regional transaction to settle payments.
The decision will immediately affect 10 million barrels of crude oil from Iran that have been contracted for delivery in January.
RBI officials are due to meet their counterparts from Iran in Mumbai in the next few days to hammer out an alternative mechanism.
“If they fail to come up with alternative mechanism quickly, there would be a surge in world crude oil prices which have already topped $ 94 a barrel,” said a petroleum ministry official.
An RBI spokesperson said no date had been fixed for the meeting and declined to speculate about the options that two sides could discuss.
The RBI decision was taken after the European Central Bank asked it to certify that none of the payments routed through the ACU, established by nine nations, including India, Pakistan and Iran, was meant for items on a list of American sanctions.
Payments through the ACU were carried out in dollars till 2008. After the US imposed sanctions against Iran, the payments were made in the euro.
The US has been pushing its allies to tighten the squeeze on Iran because it fears Tehran has been running a rogue nuclear programme.
Washington had warned Indian firms dealing with Tehran that they ran the risk of violating a law signed by President Barack Obama in July that bans business with 17 Iranian banks and much of Tehran’s oil and gas sector.
Reliance Industries immediately stopped sourcing crude oil from Iran and exporting diesel to Iran, which doesn’t have much refining capability.
The Iranians are expected to ask for some form of government guarantee for payments or try and persuade the RBI to act as a facilitator for trade between the two countries. Other options include forming a consortium of local and foreign banks that could facilitate payments for crude oil imports from Tehran.
Local crude oil importers want Iran to appoint an overseas bank through which the payments could be routed.
An oil company official said the National Iranian Oil Co and Indian firms would have to find a common platform — probably a European bank — to settle trade instead of going through their central banks.
India and Iran carry out most transactions through the ACU. Data from the ACU website show that India owed $8.9 billion to Iran, or 88 per cent of the $10.1 billion that all members owed Tehran in the 11 months of 2010.
India imports close to 80 per cent of its crude oil requirements with Iran being its second largest supplier after Saudi Arabia. In 2009-2010, it imported 21.3 million tonnes of crude oil from Iran.