any transactions for trade with Iran, putting a severe crimp in plans by the Islamic Republic to boost its trade with India.
The Reserve Bank of India (RBI), which is the Indian name for the central bank, issued an announcement last Thursday saying it would no longer process payments for the import of Iranian oil and gas. On Monday, after the Christmas holidays, it issued a second statement saying it would no longer process payments for any kind of trade with Iran, either imports from or exports to.
It told traders to find their own mechanisms for conducting trade, leaving them high and dry.
India and Iran are both members of the Asian Clearing Union (ACU), which was designed to promote trade by facilitating payments among the central banks of nine Asian nations: Iran, Pakistan, India, Bangla-desh, Myanmar, Nepal, Bhutan, Sri Lanka and the Maldives.
But the two statements told Indian traders they would have to conduct their business outside the ACU mechanism.
The bank said it was taking this action “in view of the difficulties being experienced by importers/exporters in payments to/receipts from Iran.” But the action taken by the bank can only increase the “difficulties” traders will face trying to deal with Iran.
Traders would now need to look to some private bank to try to complete transactions with Iran. But the US Treasury has been leaning—very successfully—on banks throughout the world to cut off their business with Iran.
The Reserve Bank of India did not give a clear and rational explanation for its action, which prompted speculation that it had acted at the urging of the US Treasury. Indian political leaders, however, are extremely conscious about any appearance of kowtowing to the United States and commonly add to their own woes by avoiding an action that is in India’s self-interest if it would open them to criticism of appearing too close to Washington.
In this case, the very shallow explanation given by the bank did not even hint at any benefit that would accrue to the bank by its action, thereby feeding speculation it acted at American behest.
The next question is whether any other countries in the Asian Clearing Union will adopt the Indian bank’s policy and close the door on transactions with Iran.