TEHRAN (Iran News) – India’s UCO Bank is exploring new avenues to keep the Rupee-Rrial payment mechanism with Iran alive as the US sanctions on the Islamic Republic has negatively affected trade relations between the two countries.
As India has no longer been importing oil from Iran due to illegal sanctions imposed by the United States following its unilateral withdrawal from the 2015 Iran nuclear deal in 2018, the Indian lender is in talks with importers to use the mechanism for other imports, according to the bank’s A.K. Goel, Business Standard reported.
“In the last few months, there has been no fresh inflow into the payments account. We are exploring the opportunity to import other commodities, such as fresh fruits, under the mechanism. Our role here is not an only settlement but also to facilitate trade between India and Iran,” said Goel.
Rupee-rial trade mechanism
In the wake of US sanctions, India cannot engage in dollar-denominated trade with Iran. Hence, a special rupee-rial trade mechanism has been put in place, which is a barter-like arrangement by the two countries to carry out trade without using international currencies like the dollar.
Under this, oil refineries from India deposit funds into designated banks to import oil from Iran. These rupee funds are then used to clear dues of traders that export from India to Iran.
UCO Bank and IDBI Bank are the two Indian banks that support this payment mechanism, and such deposits make up for a bulk of low-cost deposits for the lenders.
However, even as oil imports have dried up, exports have not fallen as much.
According to government data, imports from Iran stood at nearly $13 billion in 2018-19, which came down to nearly $1.35 billion between April and January in 2019-20. In contrast, the fall in exports was much less. Exports to Iran stood at $3.5 billion in 2018-19, which fell to $2.80 billion between April and January of this financial year.
Rice, tea, sugar, and pharmaceutical products are key items India exports to Iran, with rice accounting for the largest share.
Iran has been an important trade partner for India.
- source : Iran Daily, Irannews