for their trade under which Iran will be partly paid in rupees for the oil it sells India.
The two countries adopted a new payment system several weeks ago—clearing payments through a Turkish bank in Ankara. No one has said there is any problem with that payment structure—but several Indian officials have said they are not confident the Turkish bank will continue for long to handle payments to Iran.
However, the main motivation for the new mechanism seems to be Indian firms, especially in the tea industry, which have not been receiving payments from Iran under the oil payment deal.
However, news accounts of the new agreement do not agree on a major point.
Iran’s Fars news agency said that the new payment system involves Iran opening rupee accounts at two Indian banks, IDBI and UCO. Indian buyers would then pay 20 percent of their bill for Iranian oil imports into those accounts in rupees. Iran would use those deposits to buy India goods for export to Iran.
The Economic Times of India described a very similar arrangement—but it said India would pay 50 percent of its import bill into the accounts in rupees—a very major difference.
The 20 percent figure given by Fars appears to be a reasonable number. In the Indian fiscal year from April 2010 through March 2011, India bought $10.93 billion worth of Iranian products, almost entirely oil. In that same year, Iran bought $2.74 billion worth of Indian goods. In other words, Iran bought 25 percent as much from India as India bought from Iran. Therefore, a payment plan allowing for India to pay 20 percent of its trade in rupees is unlikely to stick Iran with any unusable rupees.
A 50 percent rupee payment, however, would require Iran to buy much more from India or see its rupee bank account growing every month.
India had at one point wanted to pay rupees for all the oil it imported. But Iran would then have been stuck with lots of non-convertible rupees. Furthermore, India would not agree to allow Iran to use any extra rupees to buy up Indian businesses.
The news reports said India would continue to pay the remainder of its import bill in euros to Iran through the Turkish Halkbank.
One report said that if the Halkbank route is blocked, India planned to approach Russian banks to act as a clearinghouse for the debt. But India reportedly approached Russian banks months ago to take on that role and got nowhere.
Indian news reports said the new agreement was prompted in large part because Indian firms had not been paid by Iran. Apparently, the Halkbank route is a one-way route for paying Iran for its oil. But Indian tea exporters, which sell a lot of tea to Iran, were not getting paid under that arrangement. Now they will get swift payments in rupees from the Indian banks.
As for Halkbank, there is concern that it may cave to American pressures and stop handling the payments. The Islamic Republic has started speaking quite testily to the Turkish government in the past month, which might also have prompted fears that a Turkish bank should not be considered reliable.
Iran is most unhappy that the Turkish government has decided to host an American radar intended to watch for Iranian missile launchings. It has also been angry at Turkey’s outspoken opposition to Syria’s repression of anti-government protesters.
India used to pay Iran for imports through the Reserve Bank of India, which is India’s central bank. Each quarter, the Reserve Bank would be told by the Asian Clearing House what was the net figure India owned Iran for trade.
All the Reserve Bank got from the clearing house was a number. American enforcers of US banking restrictions wanted to know what the payments were being made for—and the Reserve Bank could not prove that it was not sending Iran money to cover missile parts or nuclear materials. To protect its access to the American banking system, the Reserve Bank last December announced it was halting all such payments to Iran.
That set off the scramble that is still being dealt with 10 months later.
