India and Iran all set for bilateral trade

In a significant breakthrough both India and Iran have come together to resolve the payment crisis. This could lead to improved trading strategies between both the nations. India and Iran have agreed to set up a payment mechanism in which payment crisis for export and import of oil could be resolved, facilitating the bilateral trade.

According to the Indian Finance Ministry, both the countries have come together to sign on an agreement which would put in place to serve the purpose, including the payment to project exporters and Indian exporters. Though no statements were made by the ministry, it can be inferred from the agreement that it would also include the payments made by India for buying crude oil from Iran. The issue of payment has been causing unrest for the past nine months in the Indian side, struggling on finding ways to resolve it.

The agreement would follow a meeting between the Department of Economic Affairs (DEA) Secretary R.Gopalan and the Iranian delegation led by the Vice-Governor of Central Bank of Iran, Seyed Kamal Seyed Ali.

The issue of payment between both the countries arose in December 23, when India’s Central bank (Reserve Bank of India) put forth restrictions on the transactions with Iran through the Clearing House System (Asian Clearing Union). This has won the appreciation of the US which has imposed sanctions on Tehran to make its nuclear programme halt. The sanctions imposed include banking restrictions.

India on the other hand has also agreed to stop paying for its Iranian oil imports via Germany. This is the result of German Chancellor Angela Merkel’s intervention, instructing Germany’s central bank (Deutsche Bundesbank) to halt the payment clearance from India to the bank which is under to US sanctions.

Iran is continuously supplying crude oil to India despite India’s debts. But it is having apprehensions about the payment for India’s crude oil imports. It has threatened India to stop its supplies if India doesn’t find a mechanism to pay for its imports. Iran is second largest oil supplier to India after Saudi Arabia, and India is second largest purchaser of crude oil from Iran after China, accounting for 20% of its exports. Whereas Iran supplies India’s 12% of total oil needs.

The oil marketing companies and the Indian exports have been struggling hard to make the payment transfers to Iran owing to the fact that there are international sanctions (mainly the banking restrictions) imposed over Iran. However, a temporary solution to this was found in early September in which Indian companies were to make the payment transactions through Turkey. The companies such as Petrochemicals and Mangalore refinery were to transfer the funds to state owned Turkiye Halk Bankasi (Halk Bank) in Istanbul. This bank later on transferred the payment to the account of National Iranian Oil Company. After the agreement some relief can be sought from the existing turmoil in payment issues between India and Iran and moreover this would also boost the bilateral trading between both the nations.

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