India is engaging in talks with European Union to search for an alternate route of payment for Iranian crude oil. After November 4, as a result of sanctions put on Iran by the Trump administration, settlement of payment in US dollars will be restricted.
In addition, India will settle payments with Iran in Rupee for purchase of crude oil. From November 4, Indian refiners will purchase Iranian oil with payment in Rupee through UCO Bank and IDBI bank since these banks have no exposure to US financial system.
— Financial Express (@FinancialXpress) June 23, 2018
India and Iran, in 2012, had put in place a Rial-Rupee arrangement for bilateral trade. In May 2012, Minister of State for Commerce and Industry Jyotiraditya Scindia said, “Rial-Rupee payment arrangement has been put in place for bilateral trade between India and Iran”.
India decided to cut down crude purchase from Iran, following US sanction to nearly half while hoping to secure waivers amid the sanctions. Secretary of state Pompeo told a news conference “There are still a number of decisions pending before the November 4th deadline that we got to make about waivers, potential waivers”. But there has since been no new of any waiver from the US administration side.
Pompeo said “Come November 4th, there will be a fundamentally different set of rules” regarding “anyone who deems it necessary to engage in economic activity with the Islamic Republic of Iran. It is a big important day”.
As Iran is the third largest oil supplier to India, it will not be possible to cut oil import from Iran to zero due to the fact that Iran offers cheap oil with cheaper freight and longer credit period. In addition, India’s energy needs are also growing. The reduction in Iranian oil import will also add to the rising inflation and weakening rupee, as crude oil prices go further up.