Falling rupee value, growing ties of Iran with Asia, make them natural partners

India and Iran seem set to reinforce their energy ties — a move that could help New Delhi arrest the sharp decline in the value of the rupee versus the dollar, and benefit Tehran, which has been badly hit by unilateral sanctions marshalled by the United States.

For the first time since April, the Mangalore Refinery and Petrochemicals Ltd. (MRPL) has received 85,000 metric tonnes of Iranian crude. Bloomberg quoted MRPL managing director P.P. Upadhya as saying the cargo had been received on August 17, and three more shipments of a similar size are in the pipeline. “This is the first cargo we’ve got from Iran this financial year and we’ll see how many more we can import in the rest of the year,” said Mr. Upadhya. “The same ship has returned to Iran and will bring the additional cargoes.”

The transaction follows a comment in Parliament earlier this month by Finance Minister P. Chidambaram, signalling that India could buy more from Iran, as part of a string of steps to the defend the falling rupee. “Within the U.N. sanctions and fully complying with the sanctions, there may be more space for imports from Iran,” said Mr. Chidambaram.

Iran’s Fars News Agency had earlier reported that India and Iran had explored avenues to bolster their energy ties during talks, late in May, between Iran’s visiting former Oil Minister Rostam Qassemi and his Indian counterpart, M. Veerappa Moily.

India complies with U.N. sanctions, but has, in line with emerging countries such as China and Russia, opposed the imposition of unilateral energy sanctions against Iran by the Obama-administration.

The Obama administration has passed the Comprehensive Iran Sanctions, Accountability and Divestment Act (CISADA), which seeks to starve import-dependent Iran of gasoline and other refined products, by serving notice to foreign gasoline exporting countries that the continuation of their dealings with Tehran could compromise their business activities in the United States. Separately, the U.S.-led sanctions also target Iran’s Central Bank by penalising all foreign financial institutions that do business with it.

Unlike payments for its oil imports in dollars with other countries, India and Iran have worked out a complex mechanism that allows India to pay for its oil in rupees, which are then converted into physical goods that flow into Iran. The payments are made to the Kolkata-based UCO bank where the Iranians have opened an account. The rupee deposit is then used to pay Indian exporters, obviating the demand for dollars, and lowering the pressure on the currency to rise.

The Hindu Business Line had earlier reported that India’s exports to Iran in 2012-13 had jumped by 39.4 per cent to $3.36 billion over the previous year.

Insurance fund

According to Bloomberg, India has been preparing a $314-million insurance fund to cover future imports, as Indian insures declined to cover refineries process Iranian oil. On their part, the Iranians have this year taken delivery of seven supertankers, all made in China, to escape the sanctions dragnet.

In combating sanctions, Iran has made a conscious effort to orient its trade and commercial ties towards the “East”, by consciously forging new economic bonds with countries such as China, India, South Korea, Japan, Turkey and the United Arab Emirates (UAE).

By the first quarter of 2013, 75 per cent of Iran’s trade has been channelled to Asia, and only 25 per cent towards the rest of the world.

The decline in trade with the EU is startling. From €27.8 billion in 2011, trade with the EU plunged to €12.8 billion dollars in 2012.