It agreed to take rupees from India in payment for Iranian oil.
The agreement was announced Tuesday by Mehdi Nabizadeh, Iran’s ambassador to India.
He said that starting right now, Iran would accept Indian rupees in payment for 45 percent of the Iranian crude India buys. The remaining 55 percent will continue to be paid in euros to an Iranian account in Turkey’s Halkbank, to which all payments have been directed since last summer.
Nabizadeh said the countries would continue to look for an alternative payment mechanism for that 55 percent. Both Iran and India fear that new sanctions now taking effect will prompt Halkbank to dump their business.
India has always wanted to pay Iran in rupees. But Iran has consistently refused until now. The rupee is not a convertible currency and the currency is also losing value rapidly.
Other countries do pay Iran in local currency. For example, South Korea pays Iran in won deposited into an account in a Seoul bank. Iran buys a lot of goods from South Korea, so it just uses won from that account to make payments.
However, in recent years Iran has only bought about 20 percent as much from India as it sells to India. Many analysts assumed Iran would eventually agree to take payment for 20 percent of its oil in rupees. But the 45 percent figure was a surprise that suggests India has used the threat to stop buying Iranian oil to throttle Iran and extract a good deal.
The new system would appear to force Iran to buy more Indian products since Iran cannot spend the rupee freely around the world. It has to use the rupees inside India or just watch them pile up in the bank account.
The full details of the new arrangement have not been announced, and there may be some surprises in the details. For example, many months ago India said it wanted to pay in rupees but would bar Iran from using any of those rupees to buy stock in Indian companies. Iran did not like that. Ambassador Nabizadeh neglected to address that point.
The Indian government last week announced firmly that it would refuse to abide by US sanctions and, in fact, would outright flout them by continuing to buy Iranian oil. That got a great deal of media attention. The media, however, neglected to note that the Indian government doesn’t decide from whom crude oil is bought. That decision is made by Indian refiners, who have said they are talking to other oil producers.
Political analysts said the Indian government’s tough anti-American talk was purely for domestic political consumption. The ruling coalition is dependent on support from a Maoist party that is loudly anti-American and pro-Iranian and constantly accuses the government of kowtowing to Washington. The government’s strong comments last week “proved” it was not kowtowing.
Partial payment in rupees should make Iranian oil a little more attractive to Indian refiners. But the devil is still in the details. For example, Nabizadeh did not say how much time the Indian buyers would have to pay up.
China has balked at Iran’s refusal to extend credit terms to 90 days from 60 days. Because of that, China halved its purchases of Iranian crude for January, then extended that boycott through February and last week extended it through March, Reuters news agency reported.
Countries are clearly using Iran’s straightened circumstances to try to extract concessions from it.
It appears that India is the first country to successfully extract concessions from the Islamic Republic. But more details on the new arrangements will have to be revealed to be certain about that.