Iran sanctions: India exploring Russia payment route

With the U.S. and the EU imposing fresh sanctions against Iran, India is exploring all possibilities to keep the Iranian oil flowing as it is critical to its energy security. One of the options being discussed is firming up an arrangement with Russia’s Gazprombank for paying to Iranian oil.

In the wake of the U.S. and the European Union approving fresh sanctions and an oil embargo against Iran, India has no choice but to step up its efforts to find new ways to pay for Iranian hydrocarbons.
Unlike Turkey, the current mediator between Indian and Iranian oil companies, one of the most convenient options seems to be using the Russian banking system, which is not facing a lot of pressure. To keep Iranian oil flowing as it contributes around 12 percent of New Delhi’s oil imports, India had started preparing in advance for the introduction of the EU oil embargo against Iran. An Indian multi-ministerial delegation visited Tehran from January 16 to 21 to discuss with Iranian colleagues the possibility of changing the current payment methods for Iranian oil.

According to Indian media reports, India is exploring the possibility of opening a bank account in another country, perhaps with Russia’s Gazprombank. The desire for such an arrangement was expressed by Indian Oil Corporation and Bharat Petroleum Corporation, India’s two largest oil refiners. Indian Prime Minister Manmohan Singh discussed the question of opening accounts with Russian politicians during his visit to Moscow in December. Gazprom has not yet released information about a possible deal. Another proposed way to change the payment scheme for Iranian oil would be to transition to a barter system. India would invest in other sectors of Iran’s economy and in return receive an equivalent amount of Iranian oil.

The other alternatives that are being explored include paying for Iranian oil in Indian currency or Japanese yen. There is also a possibility of paying through gold. Tehran receives around $12 billion annually from New Delhi for oil (12% of India’s total oil consumption), and both countries wish to maintain trade volumes. However, with the progressively worsening economic sanctions against Iran, imposed unilaterally by the U.S. and the European Union, there are fewer opportunities for India-Iran cooperation. For India’s oil companies, this situation could lead to serious economic losses.