Iran and India are considering an alternate settlement mechanism for trade despite a payment of $5bln for crude imports having been made by Indian oil companies, sources said.
Sources said the move was necessitated by the fear that the US could put pressure on Turkey, through which payment was routed, to stop acting as the intermediary for oil payments. Also, several Indian exporters have not received payments for rice, tea and plastics that they exported to Iran as the Reserve Bank of India put restrictions on settlement under the Asian Currency Union following pressure from the US.
The proposed mechanism that is still under discussion envisages net settlement in rupees, something akin to the rupee-rouble trade with the erstwhile Soviet Union. Under the arrangement, Iran can invest in designated sectors such as oil and gas and also put the money in government securities. This way, the money will also earn good returns and outstanding dues would be cleared, an official said.
Officials admitted that the proposed alternate mechanism was not fool-proof as finally the funds would have to be transferred to the Iranian government or some of its agencies. Besides, over a period of time, it will result in substantial holdings of government securities and, possibly, even equity shares with Iranian agencies.
TOI was the first to report on December 29, 2010 that a rupee-based settlement mechanism was under consideration.
Reports said on Sunday that India had paid $5bln for oil shipments and it will continue to pay for ongoing crude oil supplies.
In case of non-oil trade, bulk of which is non-oil shipments out of India, exporters are routing consignments through third countries such as the UAE to avoid payment delays.
Payment problems arose last December after RBI asked importers to settle their accounts outside the Asian Currency Union in currencies other than dollar and euro, leaving oil companies to pay for the crude only in rupees.
"RBI goofed up in doing away with the Asian Currency Union without putting an alternate mechanism in place. You don't end a system without putting a new one in place," said a senior official involved with the discussions.
For the moment, payment for oil is routed through Turkey's state-owned Halkbank.