Indian companies are entering into trade deals with Iran under rupee payment mechanism, a move which is indicative of New Delhi’s growing confidence of getting a waiver from the US economic sanctions on the Middle East country.
The US economic sanctions against Iran will kick in from November 4, 2018.
Government and export industry sources in India indicate that India is more or less confident that the US would grant some concession to India by way of a conditional waiver on import and export of some of the essential items.
The latest to enter into a rupee payment-based trade deal with Iran is India’s leading Basmati rice exporter KRBL for supply of food under a direct deal with the Iranian government through the tendering process for rice procurement.
“We have bagged the export order to Iran through a tendering process conducted by the Iranian government authorities and the payment for this will be settled in Indian rupee terms,” a senior executive with KRB, who did not want to be named, told Arabian Business.
Earlier, two of India’s state-owned oil refinery companies, including Indian Oil Corporation (IOC) have reportedly contracted crude oil supply from Iran for November on rupee terms.
While India imports mainly crude oil from Iran, its exports to Iran includes agri-food products such as rice and pharmaceutical products.
According to officials in the Federation of Indian Exporters Organisations (FIEO), the apex body of Indian export promotion organisations, indications from officials at India's Ministry of Commerce and Industry so far point to the possibility that the authorities plan to carry on with some limited trade with Iran under the rupee payment mechanism.
“The commerce ministry officials are still having discussions on this issue (of trade with Iran post-November 4). They are expected to work out the modalities if trade is to be done under rupee payment mechanism. They will also be working out alternate options if the US refuses any waiver to India on the sanctions (with Iran),” Dr Ajay Sahai, Director General & CEO of FIEO, told Arabian Business.
“We are still waiting for some kind of a directive from the commerce ministry on this issue,” Dr Sahai said.
India is particularly concerned with its crude oil import from Iran, as any restriction on this will force the country to contract additional supplies from other oil producing countries including Saudi Arabia at probably higher prices.
Such a situation will further push up India’s oil import bill, leading to further widening of its current account deficit (CAD) and most importantly could upset its fiscal deficit target of 3.3 percent for FY19.
“How the crude oil prices will move post-November 4, 2018 will depend on how OPEC (Organization of the Petroleum Exporting Countries) reacts to the US sanctions on Iran. If OPEC decides to increase crude production and supply, then prices may not go up. However, if it does not increase supply, then there is a fair chance for firming up of crude prices in the coming weeks,” Madan Sabnavis, Chief Economist at credit rating agency CARE, told Arabian Business.
Sabnavis said the cost impact for India may not be much in the short run, with crude prices coming down to $74 per barrel currently after reaching $85 about a month ago. “There is possibility that Indian refiners must have contracted additional quantities in anticipation of supply disruptions from Iran,” he said.
“The chances of crude prices going up as soon as sanctions on Iran kick in are pretty high. With no clarity yet on the US response to India’s request for relaxations to the country regarding Iran sanctions, India may have to source oil from more expensive sellers, on less attractive payment terms,” Ashok Jha, former Indian finance secretary, told Arabian Business.
Iran is the third-largest supplier of crude oil to India, supplying about 10 percent of its requirement during 2017-18.For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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