Exporters & Refiners a Worried Lot as US-Iran Standoff Rages on Close.

KOLKATA/NEW DELHI: The US-Iran standoff over Tehran's nuclear programme flared on Wednesday, rattling Indian refiners, who fear a jump in crude prices if supplies are hit, while exporters of rice and tea are panicking as Iranian buyers have started defaulting and banking channels will dry up after a week.

Indian diplomats, oil firms and commodity traders warily watched the escalating confrontation after Iran flaunted a breakthrough in nuclear technology. Crude oil prices hit a six-month high of $120 a barrel after Iran's state TV said the country had stopped exporting oil to six European countries.

Iran subsequently said there was no immediate move to do so, but markets remained on tenterhooks after reports the US wants to block Iran's access to a clearing house called "SWIFT" that is used by Iranian banks for financial transactions, including oil exports.

TEA, RICE EXPORTS TO PLUNGE

The escalating tension is bad news for India, where state oil firms are selling transport and cooking fuels below market prices and rice traders count on Iran for half of India's total exports of the commodity.

Indian tea and rice exports to Iran through Dubai are expected to plunge as Dubai-based banks will stop working with Iranian banks from February 23, traders said. Indian exporters have been selling basmati rice invoiced in dollars to Dubai-based traders, who then supply the grain to Iran.

India is the biggest supplier of rice to Iran apart from being the biggest buyer of Iranian crude as other Asian buyers scaled back purchases from Iran. India's purchases have also fallen over the years as companies such as Reliance have completely stopped buying Iranian crude, but Essar Oil and state-run MRPL buy significant quantities.

India's biggest state-run refiner Indian Oil Corp, a relatively small buyer, plans to continue importing crude oil from Iran. "We import about 1.5 mt crude oil from Iran and we intend to renew our term contract for the same quantity," IOC Chairman RS Butola said.

An oil ministry official said the US-Iran conflict was a big source of worry even for refiners that had shifted to other suppliers. "Even if India is not directly influenced by the US or EU sanctions, the Iranian crisis would certainly disrupt global crude oil supplies, which would in turn push up international crude oil prices. We may see crude oil prices soar to a new peak due to tensions in the Gulf," said the official, who did not want to be identified.

The US-Iran standoff has already added up to $15 a barrel to the price of Brent crude, and oil prices may jump to $200 if oil cargoes are interrupted, Societe Generale SA said, according to a Bloomberg report. For commodity traders in India, the situation is already alarming. Iran buys half of the rice exported from India. Sources said the UAE central bank has told lenders to stop financing trade with Iran. Western economic sanctions have devalued the rial, raised the cost of imports for Tehran and made it more difficult for Dubai-based middlemen to process payments.

"Banks in Dubai have been asked by the UAE central bank to stop issuing letters of credit to finance trade deals with Iran. Before the sanctions, the central bank used to monitor trading with Iran on regular basis," said a banker based in Dubai.

About 8,000 Iranian traders are registered in Dubai, and re-export trade between Iran and the UAE totalled 19.5 billion dirhams ($5.32 billion) in the first half of 2011, according to the latest figures from the UAE Customs Authority.

Vijay Setia, president of All India Rice Exporters Association, said: "The possibility of exporting rice through Dubai will diminish as we have been informed that Dubai banks will not be working with Iranian banks from February 23 onwards. This is a major jolt to rice trade. We supply around 1 million tonnes of basmati rice to Iran, which meets almost 70% of the country's requirement. Nearly 70 - 80% of these exports is routed through Dubai. We have to work out some other mechanism."

Iranian buyers have defaulted on payment for about 200,000 tonnes of rice that have been supplied from India. The defaults, totalling about $144 million, were for shipments under term deals in October and November free-on-board Indian ports, traders said. Most Indian rice exporters allow 90 days' credit.

Some rice exporters have already stopped sending consignments to Iran in view of the payment crisis. Rajesh Sehgal, managing director of Sky Exim Ltd, an export house, said his company had stopped transactions with Iran in view of the impending crisis. "I used to send 50 containers of rice each containing 23 tonnes to Iran directly and indirectly. I will only send consignments to Iran if the Dubai trader now provides letters of credit from European and US banks that are approved by Indian banks," he said.

Tea exporters are also worried as India ships about 15 million kg of orthodox tea to Iran, earning about $50 million. "There has been a squeeze in the Dubai banks dealing in dollar-denominated currency for the last 3-4 months. But we had continued with the trade though the volumes had trickleda¦ It is really a matter of concern if Dubai banks stop dealing with Iranian banks as tea exporters had always used the Dubai route to export teas to Iran," said CS Bedi, chairman of Indian Tea Association and managing director of Rossell Tea Ltd.

The Iran crisis has pushed down orthodox tea prices by 14 per kg as there is hardly any buyer for it in the domestic market.

Source : economictimes.indiatimes.com