India is expected to fall back to the rupee payment mechanism for crude supplies from Iran, in order to counter the threat of sanctions from the United States. The India government is expected to announce the payment option over the next few days.
This is necessary as the US sanctions would close the dollar payment gateway for trade transactions and unless there is an alternative payment mode, import of crude oil would become difficult.
India depends on Iran for nearly 10 per cent of its crude oil requirements and unless some payment options are worked out supplies will dry off.
It is not known whether the sanctions on Iran would have the backing of the UK, France, Germany, Russia and China, countries that are also part of the JCPOA, as these countries are yet to take a call on whether to go with the US decision.
India had used UCO Bank to fight payment restrictions during the previous sanctions regime against Iran (2012-2015). India then made payments to Iran for crude oil in rupee through UCO Bank. Iran, in return, used the money to pay for other imports from India.
India then used a Turkish bank to pay Iran for crude oil in 2013, but later turned to rupee payments for almost 50 per cent of the oil imported from Iran and kept the remaining pending till opening of payment routes.
When restriction were eased in 2015, India started clearing the dues. India then used a combination of rupee payments and payments in other hard currencies like the British pound to overcome the earlier sanctions.
“We are keeping all options open given the challenges we may face during the sanctions,” said a government official.
India imports around 10 per cent of its crude oil requirement from Iran and the Islamic nation is the third-largest supplier to India. For 2018-19, India has a target of importing 21 million tonne of crude from Iran.
US President Donald Trump has decided to withdraw from JCPOA, also called the Iran Nuclear Agreement, which was agreed upon in 2015 under which Tehran was to curb its nuclear programme in return of lifting of financial and trade sanctions.