India is looking to revive rupee trade to settle part of its oil payments to Iran, after fearing foreign channels to pay Tehran might choke under pressure from US sanctions, two government sources said.
During the previous round of sanctions, India devised a barter-like scheme acceptable to Washington to allow it to make oil payments to Tehran in rupees through a small state bank. Iran had used the funds to import goods from India.
“We are looking at reviving rupee mechanism … we have to prepare ourselves,” one of the sources told Reuters, adding that the current payment mechanism might not work from November.
A commerce ministry official said that India’s central bank is yet to decide on moving back to the rupee payment mechanism.
In May, this year, US President Donald Trump withdrew from a 2015 nuclear accord with Iran and ordered the reimposition of US sanctions.
Some US sanctions take effect from August 6 while those, notably affecting the oil sector, will be effective from Nov. 4.
Refiners in India currently use the State Bank of India and Germany-based Europaeisch-Iranische Handelsbank AG (EIH) to buy Iranian oil, according to IOC and other companies.
SBI has written to the Indian refiners and the government to say it would not be able to handle oil payments to Iran from Nov 4, an official at SBI said.
India refiners receive a 60-day credit period for payments to Iran, suggesting oil imports from Iran could be hit from August.
The Indian government has not asked its refiners to cut Iranian oil imports, but some firms have started reducing purchases from Tehran.
Restarting the rupee payment mechanism would help fix a trade balance tilted in favour of Iran.
Country’s trade deficit with Iran narrowed from $11.4 billion in the financial year 2011/12 to about $3.6 billion in 2015/16, when the previous rupee payment mechanism was in place. Since then, it widened to about $8.5 billion in 2017/18, commerce ministry figures sho
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