Iran, India cushion oil money against US sanctions

India has come up with a scheme to buffer Iran’s oil money against US sanctions after securing a waiver from Washington to continue oil imports from the Islamic Republic.

People familiar with the matter told Bloomberg on Wednesday that India will deposit payments for crude oil imported from Iran into escrow accounts of five of their banks held with state-run UCO Bank Ltd.

"Payment into multiple escrow accounts will reduce the risks of Iranian bank accounts being frozen in case the US brings new banks under sanctions,” they said.

India bought $9 billion of crude oil from Iran in the financial year that ended March 31, during which the south Asian nation took in 450,000 barrels a day.

Iran’s exports to India averaged 540,000 barrels per day this year, but they should not exceed 300,000 barrels under the exemptions given by the US last month.

The oil money held in escrow accounts will partially be used by Iran for imports of essential goods from India and paying the rentals, salaries and other administrative expenses of its diplomatic missions in the country, the report said.

Iran usually imports medicines, rice, tea, yarn and rice as well as industrial products from India.

According to India’s Directorate General of Commercial Intelligence and Statistics, an arm of Ministry of Commerce and Industry, exports to Iran stood at $2.65 billion last year.

Bloomberg cited UCO Bank Managing Director Atul Kumar Goel as saying that there are 15 Iranian bank accounts in India, out of these five have come under US sanctions but the remaining 10 are eligible to process bilateral transactions.

Iranian Minister of Health and Medical Education Hassan Qazizadeh Hashemi suggested last week that Tehran may replace European and American pharmaceuticals with Indian companies for imports of medicines.

"A major part of the European and US markets is dominated by the Indian pharmaceutical companies, and the Islamic Republic has also used their products in its industries,” Hashemi said at the end of a three-day visit to India.

"Unfortunately, our approach towards European and US companies is a traditional one that should change. This change of view will surely benefit the country in the future,” he said.

India, which imports nearly 80 percent of its crude requirements, sees Iran imports crucial because many of its major refineries are adjusted to Iranian grade.

Tehran also offers better credit terms than other oil suppliers and accepts payments in rupees, which other Middle Eastern oil producers demand in US dollars.

India is the second largest importer of Iranian oil after China. The two countries have an arrangement under which 55 percent of oil payments are made in euros and 45 percent in rupees through the UCO Bank.

New Delhi has also stressed its commitment to the development of Iran’s strategic Chabahar port which India sees crucial to its connectivity ambitions.