India faces being forced to end an 18-month old arrangement of paying for Iranian crude oil imports through a Turkish bank, when tighter US sanctions against the Islamic nation come into force early next month.
Since July 2011, India has used euros to clear most of its purchases of Iranian oil through Ankara-based Turkiye Halk Bankasi. As much as 55% of its US$10bn oil imports from Iran are settled through Halk Bank, with remaining payments made in rupees (INR) in Kolkata-based Uco Bank.
The new US treasury sanctions, which take effect from 6 February, prevent banks from transferring Iran’s oil revenues from importing nations to Tehran. This will force Iran to keep its oil revenues in local bank accounts in countries purchasing its oil. It can only use those oil earnings to purchase ‘permissible’ services and goods, such as food, medicine and basic medical equipment, from those oil customers as imports back into the Islamic Republic. Corporate treasurers should ensure they are not caught up in any financial supply chains dealing with Iran, which carries the possibility of fines.
According to officials the US sanctions, if implemented, would force National Iranian Oil (NIOC) to keep all the revenue it earns from selling oil to Indian refiners in Uco or other permitted local banks. These can be used for buying permissible goods and services, such as healthcare.
Although this would seem feasible, Iran’s imports from India are just one fifth of the revenue it earns from the sale of oil. As US sanctions bar the sale of any defence or technology-intensive equipment, Iranian imports from India will remain low. Also, New Delhi has not allowed Iranians to invest in its securities or debt.
A team of Indian officials in Tehran to work out modalities of payments post-6 February , said that New Delhi has so far not sought US exemption from the sanctions.
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