Iran n-deal holds mixed prospects for India-Iran trade

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Biswajit Choudhury | 30 Nov, 2013
New Delhie 2012, whereby Indian oil importers deposit rupees into an Indian bank and rice and other goods exporters withdraw funds from the same account once their shipments are received in Iran.

The existing India-Iran barter trade system may suffer as payment channels to Tehran are expected to normalize. Iran's new government is unwilling to accept rupee payment beyond 45 percent for purchase of crude. India's competitive advantage with rupee trade, which has allowed a near-monopoly in exports of rice and soymeal to Iran, could be ended as dollar trade is expected to facilitate rival suppliers.

"Rice exports to Iran have grown as the payments mechanism gave us an advantage over other suppliers. Now the easing of dollar trade would change the situation," an executive of a Kolkata-based rice trading firm told IANS, on condition of anonymity.

India's major exports to Iran are rice, cereals, automobile components, pharmaceuticals, machine tools and steel, all of which were permitted under the sanctions.

Indian trade officials cautioned against expecting any immmediate changes in the trade system with Iran.

"There are no changes on the banking front with Iran, while we have asked the Reserve Bank for notifications in the matter," Priya Safaya, deputy director general (Banking and Infrastructure) of the Federation of Indian Export Organisations, told agency.

"I don't foresee any major notifications coming out, nor anticipate any big changes in our trade from the Iran nuclear agreement," Safaya added.

The interim Iran nuclear agreement, that will run for six months, does not ease sanctions on the oil-rich nation's sales of crude.

"The agreement is more like a facilitator. It is to be seen how it is implemented on the ground and how much Iran actually benefits in payments from the easing of sanctions," Safaya pointed out.

The trade official said the prospect of regularising the trade with Iran after the nuclear agreement was welcome, as exporters have complaints about payment uncertainties owing to the risky and time-consuming nature of export payment disbursals by the Indian bank.

"Under the earlier (pre-December 2010) Asian Clearing Union, payments through Indian banking systems were processed promptly," Safaya said.

Even on the oil front, Indian trade circles apprehend that Iran might withdraw certain incentives it currently offers on sales. It has been offering India incentives like tanker services and insurance for shipments to stay competitive.

"By and large the agreement on Iran's nuclear progamme is a good thing. However, the Iranians are now certain to leverage their oil prices depending on the advantages they see in the new situation," Safaya said.

A senior official of state-run Indian Oil Corp (IOC) welcomed the nuclear deal from the point of view of greater availability of oil.

"The Iran agreement is a positive thing. Any kind of moratorium affects the market and sanctions played a part in pushing up oil prices," IOC general manager (Communications) Sidhartha Mukherjee told IANS.

"We have to, however, see how the agreement actually plays out at the market level. What is to stop Iran from raising prices and ask to be paid in dollars?" Mukherjee asked.

According to Mukherjee, for a company like IOC, commercial considerations are paramount, while there are multi-dimensional considerations affecting purchases.

"We are not buying crude every day. Moreover, being a public sector undertaking, we don't indulge in practices like spot purchase of commodities and hedging," Mukherjee said.

During 2012-13, India's import of Iranian oil dropped by nearly 27 percent to 13.3 million tonnes, as against 18.1 million tonnes in 2011-12. It aims to import 220,000 barrels per day of Iranian crude in 2013-14.