Iran's two major oil buyer — India and China — now appear to be seeking to take advantage of the international sanctions against the Islamic republic by forcing concessions from Tehran, a latest Congressional report has claimed.

“India has used the payments difficulties to force concessions from Iran, including an Iranian acceptance of payment for about 45 per cent of the oil sales in rupees, India's local currency, but which is not convertible,” the Congressional Research Service (CRS) said.

“The remainder might be settled through barter trade or Indian investment in Iran, and some might be settled in gold. The Iranian concessions have made it attractive for India to refuse U.S. efforts to persuade it to cut its oil purchases from the baseline level of about 350,000 barrels a day,” it said.

As the name suggests, CRS is the independent bi-partisan research wing of the U.S. Congress, comprising experts of various fields.

CRS prepares reports on different issues for the information of U.S. lawmakers.

“Like India, China appears to be seeking to take advantage of the sanctions for its own purposes, and in so doing signalling to Iran that it disapproves of its behaviour,” said the nearly 80-page report titled Iran Sanctions.

“China has said it will not significantly reduce its oil purchases from their 2011 average level of about 550,000 barrels a day, despite the threat of the U.S. sanctions. Oil industry observers say that China cut its oil buys from Iran by about 50 per cent for January, 2012, apparently in an attempt to force Iran to discount the oil it sells to China,” it said.

“The reduction could have been caused by a disagreement between Iran and Unipec, one of China's top importers — a disagreement reportedly resolved in mid-February, 2012, and which is likely to cause China's imports from Iran to return to baseline levels. Some reports in late March, 2012, suggested another Chinese refiner, Sinopec, might cut its purchases from Iran,” it said.

CRS said South Korea is known to be actively negotiating with the United States to achieve an exemption.

“The three other large Iranian oil buyers — China, India, and Turkey — have not pledged to cut oil purchases from Iran. In addition, trade that is conducted in cash or barter arrangements would not risk sanctions under the provision,” it said.

“With the payments mechanisms largely closed or closing, India's position on whether it will cooperate with a broader oil embargo on Iran remains in doubt as of late March, 2012,” the report said, adding that India's record of cooperation with multilateral sanctions against Iran was mixed.

“India has generally been considered friendly toward Iran, and many experts were surprised when India's central bank, in late December 2010, announced that it would no longer use a regional body, the Asian Clearing Union, to handle transactions with Iran,” the reports said.

“The Asian Clearing Union, based in Tehran, was set up in the 1970s by the United Nations to ease commerce among Asian nations. There have been allegations in recent years that Iran might be using the Clearing Union to handle transactions so as to avoid limitations imposed by European and other banks, and India's move followed President (Barack) Obama's visit there in November, 2010,” it said.

“With India's purchases of about 350,000 barrels a day of Iranian oil (about $11-billion worth of oil in 2011) made difficult by the move, in February, 2011, India and Iran agreed to use an Iranian bank, Europaisch-Iranische Handelsbank (EIH) to clear the payments,” it said.

On May 23, 2011, the EU named EIH and about 100 other entities as Iran proliferation-related activities, rendering India and Iran again in search of an alternative payments mechanism.

With about $6.3 billion in oil payments due Iran building up in an escrow account, in July, 2011, Tehran threatened to reduce or cut off entirely oil shipments to India.

In late July, 2011, the two identified Turkey's Halkbank as an acceptable processor and on September 4, 2011, Iran's Central Bank Governor said India had fully settled its debt.

The U.S. law sanctioning dealings with Iran's Central Bank led Halkbank in January, 2012, to express the view that it might not be able to continue handling payments to Iran, the report said.

According to CRS, Iran's oil sales for March have fallen dramatically from prior levels.

“Once the EU embargo is fully implemented, Iran's oil sales might fall by as much as 40 per cent (one million barrels a day reduction out of 2.5 million barrels a day of sales). Iran is widely assessed as unable to economically sustain that level of lost oil sales,” it said. The signs of economic pressure on Iran are multiplying, it said, adding that the value of Iran's rial had dropped precipitously since December, 2011.

Iranian leaders had admitted that Iran was virtually cut off from the international banking system and was increasingly trading through barter arrangements rather than hard currency exchange, it said.

“The pullout from Iran by major international firms has slowed Iran's efforts to modernise its energy sector and other sectors, rendering Iran unable to increase its oil production above 4.1 million barrels a day. Still, Iran has small amounts of natural gas exports; it had none at all before Iran opened its fields to foreign investment in 1996. Still, relatively high world oil prices have reduced some of the effects of the sanctions,” CRS added.