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While the Indian government has an excellent record of enforcing United Nations sanctions on Iran, India has objected to unilateral US sanctions.                     — AP (File Photo)

WASHINGTON: Obama administration officials say they are worried India may run afoul of a new US law restricting payments for Iranian oil, forcing the White House to impose sanctions on one of its most important allies in Asia.

So far this year, India is failing to cut back its purchases of Iranian oil, which may force President Barack Obama to impose penalties as early as June 28, according to several US officials.

The US law, which targets oil payments made through Iran’s central bank, applies in any country that doesn’t make a “significant” reduction in its Iranian crude oil purchases during the first half of this year. If India fails to sufficiently cut Iranian imports, Obama may be compelled to bar access to the US banking system for any Indian bank processing oil payments through Iran’s central bank, the US officials said.

While New Delhi hasn’t asked refiners to stop purchasing Iranian crude, the government has told processors to seek alternative supplies and gradually reduce their dependence on Tehran due to increasing pressure from the United States in recent weeks, three Indian officials with direct knowledge of the situation said.

India hasn’t significantly cut imports this year because refiners’ annual crude term deals with Iran typically run from April to March, they said.

The planned reductions will start only when new annual contracts begin next month, the Indian officials said.

“Given the level of trade, and in particular oil, between Iran and India, targeting an Indian entity that facilitates Iran’s access to the international financial market should be top of mind for the US Treasury,” Avi Jorisch, a former Treasury Department official who is now a Washington-based consultant on deterring illicit finance, said in an interview.

India bought an average of 328,000 barrels a day of Iranian crude in the first six months of last year, making it the No 3 buyer, behind China and Japan and ahead of South Korea, according to the US Energy Information Administration. Iran is the No 2 producer in the Organisation of Petroleum Exporting Countries.

The US government may not be aware that India’s biggest buyer of Iranian oil, state-owned Mangalore Refinery & Petrochemicals, plans to import less from Iran starting next month, according to two officials with direct knowledge of the matter.

Oil Minister S. Jaipal Reddy, Finance Minister Pranab Mukherjee and Foreign Secretary Ranjan Mathai have said India will continue to buy Iranian oil to meet its growing energy needs. While the Indian government has an excellent record of enforcing United Nations sanctions on Iran, India has objected to unilateral US sanctions.

“We abide scrupulously by UN authorised sanctions,” Indian Foreign Ministry spokesman Syed Akbaruddin said in a phone interview. While restrictions imposed by individual countries “have an impact on commercial interaction, from a legal perspective there is nothing that binds us to follow them”.

The latest shipping data shows India and South Korea sharply increased oil purchases from Iran in January, according to a report released on Wednesday by the International Energy Agency in Paris. China halved its imports from Iran, from 550,000 barrels a day in December to 275,000 barrels a day in January, following a dispute over pricing terms that has now been resolved, the report said.

The new US law targeting Iranian petroleum transactions doesn’t specify by what percentage a nation must reduce its Iranian oil imports to qualify for an exemption from sanctions.

Officials in Washington said they were looking for cuts of around 15 per cent in volume, though they might consider whether buyers have extracted significant price discounts, thereby depriving Iran of revenue.

The US has offered India help in brokering deals with alternative suppliers including Iraq and Saudi Arabia. Riyadh has offered to replace any shortfall, according to US and Indian officials.

By arrangement with Washington Post-Bloomberg News Service