Faced with firm crude prices and a falling rupee, the Centre needs to act quickly to arrest its dollar demand. From early next month, it will have to contend with US sanctions on oil exports from Iran. A revival of rupee-based trade with Iran — which was in operation between 2012 and 2015 when Iran was under sanctions — is on the cards once again; the arrangement broadly entails Iran buying Indian rice in the rupees it earns from selling oil. The Centre’s intent, expressed on Wednesday, to enter into a similar arrangement with Russia and Venezuela — the latter India’s fourth largest oil supplier after Iraq, Saudi Arabia and Iran — is a step in the right direction. Non-dollarised trade can play a big role in keeping India’s exchange rate in check. After all, Iran accounted for about 16 per cent of India's oil supplies in 2017-18, supplying about 23 million tonnes, while Venezuela accounts for another 11 per cent, supplying over 18 million tonnes in India’s total oil imports of about 155 million tonnes in 2017-18. India's trade deficit with Iran narrowed when the latter was on sanctions, as Iran felt compelled to use up its rupee reserves. India’s experience in rupee-rouble trade with the erstwhile Soviet Union should provide it a footing to pursue a similar deal with Russia. The US is likely to disapprove of such efforts, averse as it is to any shift in global trade away from the dollar. India needs to walk the tightrope, watching its own interests without unduly antagonising the US, which has egregiously dubbed it a “tariff king”.
However, the constraints to working out these deals should be dealt with. The key is to ensure what India’s oil needs are matched by the respective countries’ demands for Indian goods, so that the deal is squared off in barter terms. Venezuela is in dire straits, with its currency, the bolivar, being rendered worthless and hyperinflation creating a food crisis. This has prompted its government to issue a crypto-currency, petro, the first government anywhere to do so. Needless to say, the Reserve Bank would be wary of this move. Venezuela’s demand for India’s rice and medicines can, however, neatly meet the latter’s oil demand, provided Venezuela is able to meet its contractual obligations. Its output is falling by the day, and is down to one million barrels per day (bpd) from three million bpd in 2011. In Iran’s case, the US is likely to keep an eagle eye on shipments, which would put India, which has already reduced shipments from Iran after August, under pressure. This, in fact, makes stitching a deal with Venezuela, which could offer supplies at a discount, critical.
Come November, and India’s oil-for-rice trade model with Iran can be broadbased. With oil prices likely to rule at $75 a barrel for sometime, according to the International Energy Agency, policymakers and citizens need to brace for trying times.