India started clearing the dues when the restrictions were eased in 2015.
Following the US waiver to India to import a restricted quantity of crude oil from Iran for the next six months, the Persian Gulf nation has signed a memorandum of understanding with India to accept payments in rupee.
Domestic refiners will pay Iran through a UCO Bank account of the National Iranian Oil Co, according to sources. The money deposited in this account will be used by Iran to pay for imports from India as even during the sanctions— which kicked in on November 5 — New Delhi can supply medicines, medical devices and foodgrains to Tehran.
India has a goods trade deficit of over $8 billion with Iran, mostly due to massive oil imports. Farm commodities make up for a half of India’s $2.6 billion in goods exports to Iran. In fact, at $900 million, basmati rice alone accounted for over a third of India’s total exports to Iran in 2017-18, payments for which were made mostly in euros. Payment for crude oil was made to Iran using European banking channels which got blocked from November.
India — which uses 80% of imported crude oil for its requirements — imports around 10% of its crude oil requirement from Iran, the third-largest supplier after Saudi Arabia and Iraq. For 2018-19, India had planned to import about 25 million tonne of crude oil from Iran, up from 22.6 million tonne imported in 2017-18. But the actual volumes could turn out to be less due to curtailed import at present.
During exemption, India can import a up to 300,000 barrels a day of crude oil compared with an average daily import of nearly 560,000 barrels earlier. Since the start of the sanction regime, Indian Oil and Mangalore Refinery and Petrochemicals have bought 1.25 million tonne of oil from Iran in November and December.
It is more lucrative for Indian oil importers to buy from Iran as they get a credit of 60 days compared to around 30 days by other suppliers. India’s oil purchases from Iran, worth around $9 billion accounted for over 80% of its total imports from the Persian Gulf nation in 2017-18.
US President Donald Trump had in May withdrew from the 2015 nuclear accord with Iran, re-imposing economic sanctions on the Persian Gulf nation. Some sanctions took effect from August 6 while those affecting the oil and banking sectors started from November 5.
During the last phase of sanctions, India first used a Turkish bank to pay Iran for crude oil. However, starting February 2013, it paid almost 50% of the oil import bill in rupees and kept the rest pending till opening of payment routes. India started clearing the dues when the restrictions were eased in 2015.
Given shipping firms are not carrying Iranian oil to India fearing the sanction, Iran has been using its own ships to transport crude to India.