India has submitted a non-rupee option to Iran to sort out the oil payment issues. Senior official sources close to the development said the option was an arrangement between Iran, India and other countries, from whom Iran imports and has to pay over and above what it imports from India.
Under the arrangement, instead of routing the payment through the Iranian central bank, India can pay those countries either in dollar or euro, yen or yuan or Swiss franc or any other internationally acceptable currency.
India could even pay a third country, from where Iran is importing, in its local currency.
"The trade balance between India and Iran is heavily in favour of Iran since it exports more than what it imports from India. For imports, the Indian government would accept a barter. But for the rest of the amount, rather than taking the payment for its imports upfront, Iran will accumulate rupees in India. The money, in turn, will be paid to a third country as and when Iran imports any item from it," explained a source.
Other countries like China, Japan and Russia have already worked out similar arrangements. It will not be a problem to pay these countries, especially, with whom Iran runs healthy trade balance favourable to both countries, said sources close to the development.
According to sources, negotiations are on with Russia’s Gazprombank since the country continues to have non-nuclear defence deals with Iran even after sanctions.
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Meanwhile, government-owned oil companies have started discussions with Saudi Arabia, Libya and Iraq for diversifying some part of the crude procurement from Iran and avoid this payment hassle in the medium term.
Officials said the impending payment issue may also push up oil prices for India, which may eventually have to be passed it on to the customers in two-three months.
Sources said importing from Iran cannot stop completely since the price was lucrative. "Due to the sanctions on Iran, we are getting good value for money. This is essential from the trade deficit point of view and from the objective of reducing oil import bill. Other countries may not offer such rates if we open all new our contracts right now," the source said.
India imports close to 15 per cent of crude oil from Iran, while the former's exports to Iran accounts for two-three per cent of the total Indian crude imports.
Earlier, Iran had agreed to the option of using rupee as a settlement currency for oil payments and to this effect, accounts were opened with two public sector banks. The arrangement was for Iran to open vostro accounts (account opened by foreign countries and its residents with Indian banks). The money was deposited and the Iranian government could get the money repatriated later when penalty situation eased.
Though the Iranian government agreed to invest the money in government securities, it did not want to compensate the bank for the statutory reserve requirements, which the bank has to maintain on these deposits with the Reserve Bank of India. The idea, officials said, never took off.
The recent US sanctions are more stringent since it imposes financial penalties on foreign banks doing business with Iran’s central bank, besides crude oil trade.
China has sought a barter trade with Iran since both maintain fair trade balance, while Japan wants a waiver. Besides countries like Italy, Spain and Greece have reportedly extended their oil supply deals and, thus, are exempt from sanctions, at least, for 2012, sources said.