Iran has told India that it will not sell crude oil to India outside the Asian Clearing Union (ACU) mechanism. The Reserve Bank of India (RBI) wants transactions with Iran to be done outside the mechanism that was created by nine Asian countries way back in 1974.
Iran exports 21 million tonnes oil to India, the second largest supplier after Saudi Arabia. India is also its second largest customer. “Though we have a 90-day credit line with the National Iranian Oil Company, Iran has told us that it will not accept any alternate0 mechanism to the ACU,” said a senior oil company executive who did not wish to be quoted.
Petroleum Secretary S Sundareshan said RBI would be holding a meeting with the oil companies tomorrow to work out an alternate mechanism. “The ACU mechanism was used for all commodities traded with Iran. We are hoping an alternate payment mechanism will be in place in the next few days,” he said. “Alternate mechanism payments could be in any currency, yen or their local currency,” he said.
Transactions with Iran are currently being done in Euro through European banks against an end-use certificate issued by the RBI. Although issue of such certificates to government-owned companies is not much of a problem, there are doubts about private importers, said the official.
Iran is facing UN sanctions for its nuclear programme but there is no bar on crude oil imports from that country. “Nobody is prohibiting imports but end-use certificates are required for getting confidence of the European banks,” said another oil company executive.
The central bank on December 27 decided that all eligible current account transactions, including trade transactions with Iran, should be settled in any permitted currency outside the ACU mechanism until further notice.
ACU was established with its headquarters in Teheran at the initiative of the United Nations Economic and Social Commission for Asia and the Pacific, for promoting regional co-operation. The main objectives of a clearing union was to facilitate payments among member countries for eligible transactions on a multilateral basis.
Thereby economising on the use of foreign exchange reserves and transfer costs, as well as promoting trade among the participating countries. The idea was to prevent weakening of the local currencies.
Besides India and Iran, Bangladesh, Bhutan, Nepal, Pakistan, Sri Lanka, Myanmar and Maldives are members of the ACU.
Transactions under ACU are done by category-I banks in the same manner as other normal foreign exchange transactions. Asian Monetary Units (AMUs) is the common unit of account of ACU and are denominated as ‘ACU Dollar’ and ‘ACU Euro’, which is equivalent in value to one dollar and one euro.
