To get around the sanctions imposed on Iran by the US last month, India and the Islamic Republic are discussing a possible re-activation of the rupee-rial payment mechanism established six years ago to deal with the Western sanctions that were subsequently lifted in 2015.

Iranian Foreign Minister Javad Zarif and his team, including Deputy Minister of Industry, Mine & Trade Mojtaba Khosrowtaj, who were in New Delhi last week, met senior officials in the Commerce Ministry, where the two sides discussed ways to increase bilateral trade and weighed the advantages of reviving the near-dormant rupee-rial payment mechanism operated through India’s UCO Bank, a government official told BusinessLine .

“Iran seems to be open to the idea of reviving the UCO Bank account by pouring more money into it, but the important thing to be agreed upon is whether Iran would want to pool all the oil money into the account or a portion of it. These are the nitti-gritties that need to be ironed out,” the official said.

Under the barter-like arrangement made in 2012, following the nuclear sanctions against Iran by a number of Western economies including the US, UK, France and Germany, about 45 per cent of the oil payments to Tehran was made in rupees through UCO Bank.

The rupee received by Iran in its account in the UCO Bank was used by the country to make payments for imports of various products from India. “It encouraged India’s exporters to explore the Iranian market more thoroughly and find buyer for a diverse category of products as Iran was interested in buying more to use up its rupee balance,” the official explained.

Since Iran agreed to a landmark nuclear deal with six world powers to limit its sensitive nuclear activities in 2015 and the sanctions were subsequently lifted in 2016, the amount in the rupee-rial account dwindled to lower than $300 million. However, with Trump abandoning the nuclear deal on May 8 this year on the grounds that it wanted more commitments from Iran, the US sanctions are back on Iran.

India’s stance

Minister for External Affairs, Sushma Swaraj, last week made it clear that India had no intentions of following the sanctions imposed on Iran by the US by stating that the country only followed sanctions imposed by the UN. Swaraj also met Zarif during his visit where the two discussed the possible impact of the US abandoning the nuclear deal.

“Under the given circumstances, it would be of interest to both Iran and India to revive the rupee payment account. While Iran will not lose out on its market for oil if things get worse, India could benefit from an increase in exports to Iran,” the official said.

A final decision on the matter, however, has to be taken at the highest level, he added.

Iran is India’s third largest supplier of oil. India’s export to Iran in 2017-18 was at $3.37 billion while its imports were at $11.11 billion.

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