SINGAPORE (Reuters) - The government expects a dispute with Iran over payment for crude oil to be settled as early as next week, ending a deadlock that has threatened to stall supplies from the Middle Eastern nation.
Oil Secretary S. Sundareshan said on Wednesday that he is “absolutely confident” that the row will be settled. Speaking to Reuters, the senior most bureaucrat in the oil ministry said that there will be no stoppage of crude oil 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.
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.
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.
Supply disruptions and extreme cold weather in the Northern Hemisphere have pushed oil prices to the highest in more than two years.
Reporting by Florence Tan and Anuradha Kanwar; Editing by Manash Goswami