Developing trade with Iran amidst US sanctions
India has thousands of years of historic cultural and trade relations with Iran, several centuries before the Americas were discovered. Irony of economic circumstances necessitate India and the rest of the world to listen to the dictates of one country, whose President unilaterally decides to back out of an agreement his own predecessor had signed, after hectic parleys over the Iran nuclear deal.
The age-old cultural and trade links were only getting strengthened and India was seeking to boost its overall agricultural exports to Iran when the sanctions came in. This recent upsurge in bilateral trade could have impacted the agricultural exports, particularly rice and tea industry, if India had yielded to the pressure. In 2017-18, Iran was India’s largest tea export destination by value, at about $100m of bulk tea, amounting to export of 31m kg of tea.
Several countries have already buckled to the pressure and even the European Union and firms, who were showing some teeth to protect trade with Iran by establishing the Special Purpose Vehicle (SPV), have been doubly warned that doing so would incur US punishment. Consequently, Brussels which was looking forward to have the SPV legally in place by November and operational early next is still in deciding phase as no country has offered to host it.
But everyone is not bowing to pressure! Though Iraq has sought US approval to allow it to import Iranian gas for its power stations, Iran and Iraq are talking of raising their annual bilateral trade to $20 billion from the current $12 billion, through enhanced focus on electricity, gas, petroleum products and activities in the field of oil exploration and extraction and a better road and rail connect between the two countries.
China, Russia and Turkey are already not paying any heed to the US dictate. Germany and France are pondering ways and means to set up a Euro-based trading system to continue trading with Iran while India had found a way of coming out of dollar paying system even when the earlier sanctions were imposed on Iran.
It is the US’s own unilateral policies aimed at strengthening the dollar that are actually weakening it as countries try to find ways and means of moving out of the stranglehold. With a view to decrease their dependence on the dollar, India and Japan have agreed to raise the value of currency swap from the $50 billion (agreed in 2013) to $75 billion during PM Narendra Modi’s recent visit to Japan. This means India can now readily borrow up to $75 billion from Japan in exchange for rupees, signaling even lesser dependence on dollar. More and more countries are slowly realizing that they will have to move away from their dependence on dollar; a scenario that couldn’t be expected a decade back.
Trade pundits are of opinion that if India stands firm, as it has done in the past, there will be enhanced scope for trade between India and Iran after the implementation of the US backed sanctions. Trade in rupee through Vostro account of UCO bank could retain the current trade and may even get a boost if India eyes the opportunity judiciously and use the trade gap to focus on exporting products that Iran requires, some of which it was importing from other countries who have not entered into a Vostro-like deal with Iran and who have fallen to the pressure to restrict their trade with Iran. Experts in the know feel it is good opportunity for India to broaden the basket of Indian exports to Iran to better utilize the Rupee funds.
It is imperative that India takes this decision in its own interest for if it would not do so, Chinese firms will fill the gap. Already, Iranian markets can be seen flooded with Chinese products, which is Iran’s biggest importer of oil.
Keeping these factors foremost, India’s ambassador to Iran Saurabh Kumar recently held a meeting with the head of Tehran Chamber of Commerce, Industries, Mines and Agriculture to discuss ways of continuing Iran-India trade under re-imposed US sanctions. Both sides felt that the US sanctions may present a new window of opportunity for Iran-India ties and the new focus of mechanisms to facilitate cooperation between Iran and India should now be on banking and financial cooperation. “Sanctions create many problems, but they have also created this opportunity for us to tap into neglected capabilities and capacities,” Khansari said. Saurabh Kumar presented a list of 1000 goods items that Iran had been importing from various countries and which India exports to the world. Iran can now start importing those items from India.
Kumar said that based on the US exemption, India can import from Iran 300,000 barrels of crude oil per day for the next six months. Half of this money will be wired in rupees to accounts belonging to the Iranian banks in Indian banks. Iran can, in turn, purchase the essential goods such as food, medicine and humanitarian trade goods that are exempt from sanctions. The remaining half of the oil money may be exchanged into Euros or other foreign currencies for Iran to receive and transfer, the Indian ambassador said, stressing that a mechanism has to be developed for this money to be transferred out of India. The list of 1000 goods items that India presented will serve as a ready-reckoner for Iranian authorities to decide the products that they may require.
India-Iran remained essential trading partners even when sanctions were imposed on Iran previously, as India exported primary edible products such as rice, meat and tea, and fairly imported crude from Iran.
India needs to focus on new set of products to export to Iran, which have so far remained tyro. They include: organic and inorganic chemicals, animal feed products, perfumery and cosmetic items, pneumatic and radial tyres, optical and medical instruments, machineries for mechanical appliances, sweet corn, ready to eat packed foods, value added processed food like wafers and cookies, automated agri machines and appliances, radars, wooden furniture’s, finished iron and steel products.