Iran seeks leeway to spend oil dues

NEW DELHI: Iran has sought more flexibility in using an estimated $6 billion in accumulated oil payments from India to buy "non-sanctioned" items — beyond "humanitarian goods" — from third countries as sliding crude prices begin to pinch.

Top government sources told TOI that Valiollah Seif, governor of Iran's Central Bank, at an early December meeting with Indian officials in Teheran, discussed options in this regard and later gave a list of items it wants to import from third countries. The options have the potential to eliminate piling up of oil payments and boost export of India-made items to that country.

While India appears to be okay with the Iranian proposals, it is likely to insist on safeguards to ensure that its gesture is not misused for circumventing the sanctions. It is likely to ask Iran to route the third-country imports through State Trading Corporation or other public sector entities.

It could also insist that the imports be made from the US/EU to ensure stronger checks and avoid criticism from the West. Another condition could be to remove items of India's export interest from third-country list.

Only food and medicines qualify as humanitarian items, whereas non-sanctioned items denote a broader category. Iran is allowed to use the accumulated oil payments to pay for third-country imports of humanitarian items with zero value-addition.

India buys roughly 7% of its crude requirements from Iran. But since UN and Western sanctions disrupted the traditional payments mechanism in 2010-11, 55% payment is made in hard currency in tranches and the rest is parked in rupee with the Kolkata-based Uco Bank.

Iran wants to exhaust the rupee pile by debiting the Uco Bank account for the third-country imports of non-sanctioned items. In case the rupee account proves to have insufficient balance, the amount is to be debited from the pending hard currency payments.

The Iranians are also open to first spending the hard currency tranche that remains unpaid due to unavailability of a channel to transfer the money. Under this plan, the hard currency would be first converted into rupee. The third-country imports could then be debited to the rupee account. As an alternative, Iran can also use the rupee fund or any surplus to buy Indian goods.

The sources said Iran also asked India to lower the value-addition requirement from 15% to 5% for such third-country imports of permissible items. The limit was imposed to prevent Iran from circumventing the sanctions, which broadly bar Iran from acquiring dual-use items.

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