Will India Benefit from Iran Sanctions?

Will India Benefit from Iran Sanctions?

By SiliconIndia   |   Monday, 30 January 2012, 12:21 Hrs
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Will India  Benefit from Iran Sanctions?
Bangalore: As rupee has depreciated, Iran would prefer selling its oil for dollars, if going by the sanctions, it might have to take rupee from India.

But the United States demands for Asian buyers to, to cut their imports to pressurize Tehran to rein in its nuclear ambitions. U.S. feels that Iran is trying to make nuclear weapons, but Tehran explains it as a program for peaceful means. The US has, however, turned into a diplomatic offensive to get the main players and importers of Iranian oil like India, China and Russia to implement sanctions against Iran.
New U.S. sanctions, authorized on December 31 will deal with severely with any financial institutions dealing with Iran's Central Bank, which could make things pretty difficult for India to pay Iran for oil imports.

Amidst all this, Indian government is very clear about the fact that the country will continue buying oil from Iran regardless of U.S. sanctions. Ranjan Mathai, Foreign Secretary, said, "We have accepted sanctions which are made by the United Nations. Other sanctions do not apply to individual countries." India has made it clear that it will abide by the UN sanctions on Iran, but has contended that unilateral sanctions by some countries (a reference to the US) affect the market and hurts its genuine interests of energy security.

Being the world's fourth largest oil consumer, India is not planning to take any steps to cut its oil imports from Iran, stated, Pranab Muhkerjee, Fianance Minister. He further added, "It is not possible for India to take any decision to reduce the imports from Iran drastically, because among the countries which can provide the requirement of the emerging economies, Iran is an important country amongst them."

As the Asian Clearing Union, which served as a clearing house for trading in Iran has pulled out itself from the trade between India and Iran, the country is in a fix to come up with a new mechanism to pay for Iranian oil. India buys around 12 percent of its oil from Tehran. It currently pays in dollars through a Turkish bank after a previous clearing mechanism was shut down in December 2010.

Iran must be in a worse situation as loosing India as a customer means relying on China to wipe up its production. But negotiating with Chinese oil majors is not a cake walk compared to smaller Indian counterparts. So Iran is at a weaker negotiation position. If India will make the payment in rupees, then Iran would prefer Japanese Yuan as it can be spent everywhere. It is likely that Iran would end up with a hit of payment in rupee.

Even though India could disagree that the Iranians are still feeling the pinch of sanctions and being forced to hold a currency they don't want, that's not likely to convince, especially when India is at the upper hand. And U.N. sanctions on Iran could annul the whole deal, crossing India running for oil.

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