India to Pay Five Iranian Banks for Oil Purchases: Report
TEHRAN (Tasnim) – India will deposit payments for crude oil imported from Iran into escrow accounts of five of their banks held with state-run UCO Bank Ltd. after the two nations agreed on a payment mechanism to overcome US sanctions, according to people with knowledge of the matter.
Iran will use part of the deposits for purchasing essential goods from India and to meet expenditure incurred by its diplomatic missions in the South Asian nation, the people said, asking not to be identified because the information isn’t public, Bloomberg reported. All spending will be in Indian rupees.
Continued supplies is crucial for India, a country that imports nearly 80 percent of its annual crude requirement, as Tehran offers better credit terms than other Middle East oil producers and, in the past, has accepted payments in Indian rupees, rather than US dollars. The south Asian nation purchased crude worth about $9 billion from Iran in the financial year that ended March 31.
The payment mechanism will allow India to continue oil purchases despite US sanctions. Washington has also granted an exemption for India. Refiners such as Indian Oil Corp. and Mangalore Refinery & Petrochemicals Ltd. will make payments after the mechanism is officially notified, the people said.
Spreading Risk
Also, payment into multiple escrow accounts will reduce the risks of Iranian bank accounts being frozen in case the US brings new banks under sanctions, the people said.
“We already have 15 Iranian bank accounts, out of these five have come under secondary sanctions,” UCO Bank Managing Director Atul Kumar Goel said Tuesday, adding that the remaining 10 are eligible for bilateral trade between India and Iran. Finance Ministry spokesman D.S. Malik declined to comment.
India and Iran followed a similar mechanism previously when the US imposed sanctions in 2012. At that time, 45 percent of the dues were paid into escrow accounts in India of Iranian banks and the remaining settled in euros through an overseas bank.
On May 8, US President Donald Trump pulled his country out of the nuclear deal known as the Joint Comprehensive Plan of Action (JCPOA), which was achieved in Vienna in 2015 after years of negotiations among Iran and the Group 5+1 (Russia, China, the US, Britain, France and Germany), and announced plans for new sanctions against Tehran.
Three months later, on August 6, Trump signed an executive order re-imposing many sanctions on Iran.
He said the US policy is to levy “maximum economic pressure” on the country.
The second batch of US sanctions against the Islamic Republic took effect on November 4.
Those sanctions were supposed to shut down Iranian oil exports, but they failed to do so after Washington, over fear of a supply crunch in global markets, granted eight countries temporary exemptions to allow them to buy from Tehran without any punishment.
Iranian oil production and exports peaked at 3.8 million and 2.4 million barrels a day, respectively, in the second quarter of this year, according to data from OPEC and the International Energy Agency. That means exports have fallen by only about 900,000 barrels per day.
