Having jumped the gun in withdrawing its facility for payments for Iranian crude oil imports, the Reserve Bank of India (RBI) is now frantically looking for an alternative payment mechanism to enable oil firms to bring home the contracted imports for January.
A senior government official said the issue would be sorted out "very soon" and RBI would be holding a meeting with Iranian officials to put in place an alternative mechanism to facilitate the imports.
- Iranian government may be accommodating as Indian firms have been doing business with them for a long time
- Also, Iran would not want their exports to be hit
- Being choked under rising pressure from the US, Iran government wants to keep its markets open
- India imported 21.3 million tons of crude oil from Iran in 2009-10
Senior officials are of the view that RBI should have first put an alternative payment mechanism in place before suddenly withdrawing the existing facility.
However, the Iranians are expected to be more accommodating as Indian firms have been doing business with them for a long time and also they do not want their exports to be hit.
Sources said that the Iranian economy is being choked under US pressure and they would like to keep their markets open.
On December 23 RBI had said oil and other import payments to Iran will have to be settled outside the existing Asian Clearing Union (ACU) mechanism, which involves the central banks of India, Bangladesh, Maldives, Myanmar, Iran, Pakistan, Bhutan, Nepal and Sri Lanka.
ACU was established with its head quarters at Tehran on December 9, 1974, at the initiative of the United Nations Economic and Social Commission for Asia and Pacific (ESCAP), for promoting regional co- operation and trade.
The main objectives of a clearing union are to facilitate payments among member nations for eligible transactions on a multilateral basis, thereby economising the use of foreign exchange reserves and transfer costs.
| RBI MOVE|
- On December 23 RBI said oil and other import payments to Iran have to be settled outside the ACU mechanism
- All current account transactions between ACU member countries were eligible to be settled through the ACU
- RBI has taken Iran off the list under US pressure
- UN sanctions don't forbid buying Iranian oil
The central banks and the monetary authorities of Iran, India, Bangladesh, Bhutan, Nepal, Pakistan, Sri Lanka, Myanmar and Maldives are currently members of ACU.
All permitted current account transactions, including export or import transactions between ACU member nations on deferred payment terms, were eligible to be settled via the ACU.
Now RBI has taken Iran off the list in a move that is widely seen to have come under US pressure. The American government has profusely welcomed the RBI's announcement.
Payments under the ACU mechanism were being made in US dollars but after 2008, when America imposed sanctions against Iran for pursuing its nuclear programme, the currency was changed to euro.
UN sanctions do not forbid buying Iranian oil and recently the ECB asked RBI and other central banks of ACU to provide certificates that the euro spending being used to import products are not on the sanctions list.
Courtesy: Mail Today