India to Pay for Oil Imports From Iran in Rupees to Skirt US Sanctions

Indian refiners are currently using European banks to make payments to Iran in euros for oil shipments. However, when US sanctions on Iran kick in on November 4, it will be difficult for India to settle economic transactions with Iran through European banks. Therefore, local banks IDBI and UCO bank have been chosen to route the payments in rupees.

New Delhi (Sputnik) — India and Iran have struck a key agreement that would allow them to skirt US sanctions on Iran that will come into effect on November 4 this year. Following a high-level meeting of an empowered committee on Thursday afternoon, the Indian government announced that it would make payments for oil shipments from Iran in rupees. Iran, in turn, could use these rupees to pay for imports from India.

READ MORE: Indian Firm to Start Operating Chabahar Port in a Month — Iranian Minister

India's Minister of Shipping Nitin Gadkari said that the Indian and Iranian banks that will be involved in the transactions have come to an understanding.

— CNBC-TV18 News (@CNBCTV18News) September 20, 2018

"We hope that Iran oil payment concerns will ease in the next week. India will start paying for Iranian crude oil in rupees. Crude oil imports from Chabahar Port will also begin very soon," an official said after the meeting in New Delhi. 

Payments will be made through Iranian private bank Pasargad, which was allowed to open a branch in Mumbai earlier this year. India's UCO Bank and IDBI Bank, which were used to route payments during previous US sanctions on Tehran, will also be used as payment channels.

The empowered committee consists of India's finance minister, Arun Jaitley, Shipping Minister Nitin Gadkari, and Foreign Minister Sushma Swaraj.

Meanwhile, Iranian officials have said they will soon hold consultations with its port authority on the issue of handing over operations of the strategic Chabahar Port to an Indian company.

READ MORE: US May Waive Sanctions for Indian-Built Iranian Port Linking to Afghanistan

It was feared that India's oil imports from Iran would be affected from the end of August, as Iran had offered a 60-day credit period on oil sales to India, which meant payments for consignments lifted at the end of August would be due in November when the second tranche of American sanctions commences. However, data suggest that Indian refiners have not cut down on Iranian crude imports, thanks to shipping containers insured by Iranian companies.

India has promised to increase its crude oil imports from Iran from 205,000 barrels per day in 2017-18 to 396,000 barrels per day in 2018-19. Iranian heavy crude is priced 90 cents lower per barrel than Arabian medium, similar to Saudi crude, for its September shipments. Iran has also offered further price reductions to India, which is one of the world's largest crude importers.