Jan. 23 (Bloomberg) -- 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, according to three people with knowledge 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, based in Ankara, which has told Indian refiners it may no longer be able to be an intermediary, four people with knowledge of the matter said Jan. 10.
European Union foreign ministers meet in Brussels today to consider an oil embargo and additional financial sanctions on the country for its nuclear program. Iran is already under four rounds of UN Security Council sanctions. The U.S. and its allies say they suspect its nuclear program is a cover for developing atomic weapons, a charge Iran has repeatedly denied, maintaining it’s for civilian purposes.
The Indian rupee has fallen 9.7 percent in the past 12 months, the most among major Asian currencies, according to data compiled by Bloomberg. Japan’s yen has strengthened 6.5 percent in the period, making it the best-performing currency in the region, according to data compiled by Bloomberg.
India is exploring how it could pay Iran in yen, although a plan hasn’t been decided, the people said.
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.
India’s central bank needs to give its approval for Iran to open a local account, the people said. The Reserve Bank of India is considering options to solve the payments issue over Iranian oil, Deputy Governor K.C. Chakrabarty said on Jan. 20.
The Gulf nation is concerned that India’s entire crude oil bill can’t be paid through exports to Iran, the people said. 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.
Iran also wants India to invest in non-strategic infrastructure projects in return for crude supplies, the people said.
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 had 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, though no deal has been reached, three of the people said Jan. 9.
Tensions with Iran have risen, with Vice President Reza Rahimi warning on Dec. 27 that Iran, the second-biggest producer in the Organization of Petroleum Exporting Countries, after Saudi Arabia, may close the Strait of Hormuz if western nations block its crude oil sales.
A potential decision by the EU to freeze Iran’s central bank assets and impose a ban on Iranian oil imports requires unanimous backing among the bloc’s 27 nations. The embargo would hurt Greece, Italy and Spain, which depend on Iranian supplies and would need to find alternative sources.
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 the United Nations, Ranjan Mathai, India’s foreign secretary, said Jan. 17. India continues to buy Iranian oil, he said.
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