India
slips on Iranian oil bills By
Robert M Cutler
India's attempts to pay
for Iranian oil in rupees may not succeed easily,
despite widespread press reports that such a
mechanism has been established. Iran is
responsible for 12% of India's imported oil and
over the past two years India has struggled to
find a mechanism to pay for this, its efforts
complicated by United States, European Union and
United Nations sanctions against Tehran.
In December 2010, the Reserve Bank of
India dismantled a settlement mechanism
denominated in dollars and euros that had
facilitated the annual payments of US$9.5 billion
for Delhi's oil imports from Tehran.
The
two countries have been considering bartering
commodities and other products for crude through a
rupee account with India's UCO Bank (UCO),
according to a Bloomberg News report last
month. Later reports
suggested that this mechanism might facilitate
payment for as much as 45% of the oil trade
between the two countries.
Iran is also
very interested in agricultural exports from
India, particularly soybean meal, sugar, tea, and
wheat. It is also seeking to barter food supplies
from Pakistan in return for fertilizer and iron
ore, and at the same time it wants to buy Indian
steel.
However, a detailed commentary in
Economic Times of India notes a number of
obstacles to the proposed mechanism, not least
that UCO's Iranian partner, Parsian Bank, requires
a minimum 120% margin deposit from importers, that
is, "worse than a cash deal", one so "nebulous"
that UCO "cannot negotiate shipping documents" and
"is limited [to] forwarding documents" to Parsian
Bank and the Iranian oil ministry, which alone can
authorize payments.
"Indian exporters",
the anonymous (that is, approved at the
newspaper's high editorial levels) commentator
concludes, "are at the mercy of [the] Iranian side
to 'hope' for payments".
In addition to
that, UCO may be "de-SWIFTed". (SWIFT is the
Society for Worldwide Interbank Financial
Telecommunication, which expelled Iran's central
bank and more than 20 other Iranian banks last
month, making it nearly impossible to complete
large international funds transfers.) The article
also details several other technical problems that
interfere even with the Tehran-Dubai settlement
mechanisms. These include but are not limited to
problems of shipping insurance, currency
depreciation, and dispute resolution. [1]
In a separate article Economic Times
notes, and is not alone to do so, that one of the
in-kind manners in which India can pay for Iranian
oil is by contributing to the so-called
International North-South Corridor project,
earlier known as the North-South Transport
Corridor, a prospective multi-modal transportation
network that has been envisioned from India to
Russia via Iran.
This corridor is not a
new idea; India, Iran, and Russia signed a
framework agreement as long ago as 2001. However,
India has lately catalyzed new interest in the
project first by promoting a January meeting with
Bulgaria, Iran, Kazakhstan, Kyrgyzstan, Russia,
and Tajikistan, and second by sending a team to
Iran that is said to have identified the rail
links there that would be in need of refurbishment
or reconstruction.
In addition to the
just-named countries, the project reportedly also
includes Armenia, Azerbaijan, Belarus, Oman,
Turkey, and Ukraine. A further organizational
meeting was reportedly planned in India for the
end of last month.
India wants a rail
route to Russia (whence perhaps even Europe) and
Central Asia, but the Himalayas block the route
northwards, even assuming China would permit such
a project. The absence of Afghanistan from the
project is noteworthy in light of the mineral and
other raw materials resources that have recently
been inventoried there, but the project organizers
judge Afghanistan and Pakistan to be just too
unstable.
According to one report, the
prospective route would connect ports on India's
west coast to Iran's Bandar Abbas on the Strait of
Hormuz, whence heading northward overland to its
Caspian Sea port of Bandar Anzali port on the
Caspian Sea; onwards to Rasht and Astara on the
border of Azerbaijan; from there both eastward,
presumably across the sea to Kazakhstan, and
northwards to Russia. No authoritative public
announcement has been made.
At the same
time, the Central Asian countries and Kazakhstan
in particular have been seeking an Indian balance
against geo-economic encroachment by China and
Russia. India has no direct route to these
countries, which are potential markets for Indian
producer and consumer goods.
The
logistical capabilities for trans-Caspian
expedition of large-scale container ships are,
however, far from clear. Given the evident lack of
interest in the project on the part of
Turkmenistan and Uzbekistan, Indian goods might
have to reach Central Asia through Russia.
Iran is buying Chinese-made washing
machines, refrigerators, electronics, and other
personal and consumer goods with yuan paid into
Chinese bank accounts, according to Kenneth
Katzman of the Washington-based Congressional
Research Service, quoted by Bloomberg News.
Iran had earlier announced that it would
accept payment for oil in gold from any third
country, without suggesting how transportation or
insurance issues would be addressed.
Note: 1. "Why there is a
need to rework Indo-Iran rupee trade", Economic
Times, March 31, 2012.
Dr Robert M
Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of
Technology and The University of Michigan, has
researched and taught at universities in the
United States, Canada, France, Switzerland, and
Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian
Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
(Copyright 2012 Asia Times Online
(Holdings) Ltd. All rights reserved. Please
contact us about sales, syndication and
republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
