In a move aimed to evade sanctions, the government of Iran has written to the Reserve Bank of India (RBI) to allow Parsian Bank, its largest private bank, to open a branch in Mumbai to receive rupee payment from Indian buyers of Iranian oil. If RBI approves the proposal, Parsian Bank will become the first Iranian bank to open a branch in India.
Lack of a steady mechanism to pay for Iranian oil has created a headache for India. Western sanctions have prevented the country from using any international currency or bank for such payments, which could halt oil imports from Iran. Headquartered in Tehran, Parsian Bank has a credit account with UCO Bank to settle foreign trade transactions.
However, this will not be extended for oil payments.
Without any concrete solution in sight, desperation has been rising on both sides. Iran stands to lose one of the last customers for its oil, while India, among Iran’s largest buyers, looks at a supply shortage.
A team of officials from RBI as well as from the ministries of finance, commerce and external affairs is discussing whether the Parsian Bank route can be used. India is studying the implications of fresh US sanctions.
In February, the US Treasury issued sanctions on government-controlled foreign financial institutions, including foreign central banks, found knowingly conducting or facilitating sale or purchase of Iranian oil. The sanctions take effect on June 28.
The move to punish foreign financial institutions for doing business with Iran’s central bank or a US-blacklisted Iranian entity contains time-based triggers for imposing sanctions.
A delegation of Indian government officials and businessmen will be in Tehran from March 10 to 14 to explore the huge business potential in view of sanctions imposed by the US and the European Union.
India and Iran have agreed on payments in rupee terms, a move that could unlock huge sums pending on both sides. The delegation will hold meetings with officials in Tehran and the business world to explore potential areas where India could become a partner or a stakeholder in the future.
Problems began after the Reserve Bank of India (RBI), in December 2010, withdrew the Asian Clearing Union (ACU) mechanism under which payments were made to Iran. India imports 12 million barrels of crude oil every month from Iran, which is the nation’s second-largest supplier after Saudi Arabia.
