India uses Yen to Square up Iran Oil, Dithers on Accepting the falling Rupees

EU to put Ban from 1 July

Iran has asked India to pay for oil partly in yen as the two nations seek an agreement on how to maintain trade amid tightening global sanctions of the matter.

At talks in Tehran last week, India proposed to pay its second-biggest oil supplier in rupees through a bank account in the South Asian nation, said the people, declining to be identified because the information is confidential. Iranian officials sought partial payment in yen because they’re concerned that they may not get sufficient value from the rupee, which isn’t fully convertible, according to the people.

The nations have struggled to preserve $9.5 billion in annual crude trade after the Reserve Bank of India dismantled a mechanism used to settle payments in euros and dollars in December 2010. Transactions are currently routed through Turkiye Halk Bankasi AS (HALKB), based in Ankara, which has told Indian refiners it may no longer be able to act as an intermediary.

European Union foreign ministers agreed to ban oil imports from Iran starting July 1 as part of measures to ratchet up the pressure on the Persian Gulf nation’s nuclear program, Dutch Foreign Minister Uri Rosenthal said in Brussels on 23 January.

Iran is already under four rounds of UN Security Council sanctions over its nuclear program. The U.S. and its allies say they suspect the program is a cover for developing atomic weapons, a charge Iran has repeatedly denied, maintaining it is for civilian purposes.

The Indian rupee has fallen 8.9 percent in the past 12 months, the most among major Asian currencies, while Japan’s yen has strengthened 7.4 percent in the period, making it the best-performing currency in the region.

Iran’s imports from India are worth about $2.5 billion a year, while its annual oil sales to the South Asian nation are valued at about $9.5 billion, the people said.

Exemption Request

India is exploring how it could pay Iran in yen, although a plan hasn’t been decided.

Japan asked the U.S. administration for an exemption from a law that would punish banks doing business with Iran and won a U.S. pledge to implement the measure “cautiously,” Foreign Minister Koichiro Gemba said Jan. 20.

The Persian Gulf nation is studying the option of opening an account in an Indian bank, which can be used by refiners to deposit payments in rupees and fund its own imports from the South Asian country, they said.

The Reserve Bank of Indiais considering options to solve the payments issue over Iranian oil, Deputy Governor K.C. Chakrabarty said on Jan. 20.

Currency Swap Renewed

Last month, Japan agreed to make $15 billion available to India in a currency swap arrangement as Europe’s deepening debt crisis threatened to curtail developing Asia’s access to dollar funding. Japanese Prime Minister Yoshihiko Noda renewed a bilateral swap agreement with Indian Prime Minister Manmohan Singh in New Delhi on Dec. 28. The two nations signed a $3 billion accord in June 2008 that had expired.

Singh discussed alternative financial conduits with Russian officials during his visit to Moscow in December. India, which got 11 percent of its crude imports from Iran last year, is exploring the option of making payments for Iranian crude through Russia’s Gazprombank OJSC (GZPR), though no deal has been reached, three people with knowledge of the talks said Jan. 9.

U.S. President Barack Obama on Dec. 31 signed into law measures that deny access to the U.S. financial system to any foreign bank that conducts business with the central bank of Iran. The law includes language that allows the president to waive the sanctions if he determines they would threaten national security.

India opposes sanctions on Iran from anyone other than theUnited Nations

, Ranjan Mathai, India’s foreign secretary, said Jan. 17. India continues to buy Iranian oil, he said.