Business And Markets

New Channels for Iran Payments

New Channels for Iran Payments
New Channels for Iran Payments

India will deposit payments for crude oil imported from Iran into escrow accounts of five of its banks held with state-run UCO Bank Ltd. after the two nations agreed on a payment mechanism to overcome US sanctions. 
Iran will use part of the deposits for purchasing essential goods from India and to meet expenditure incurred by its diplomatic missions in the South Asian nation, people familiar with the matter told Bloomberg.  All spending will be in Indian rupees.
Continued supplies is crucial for India, a country that imports nearly 80 % of its annual crude requirement, as Tehran offers better credit terms than other Middle East oil producers and, in the past, has accepted payments in Indian rupees, rather than US dollars. The south Asian nation purchased crude worth about $9 billion from Iran in the financial year that ended in March.
The payment mechanism will allow India to continue oil purchases despite sanctions as it fulfills President Donald Trump’s goal to choke money going directly to Iran. Washington has also granted an exemption for India. 


Spreading Risk

Also, payment into multiple escrow accounts will reduce the risks of Iranian bank accounts being frozen in case the US brings new banks under sanctions, the people said.
“We already have 15 Iranian bank accounts, out of these five have come under secondary sanctions,” UCO Bank Managing Director Atul Kumar Goel said Tuesday, adding that the remaining 10 are eligible for bilateral trade between India and Iran. 
India and Iran followed a similar mechanism previously when the US imposed sanctions in 2012. At that time, 45% of the dues were paid into escrow accounts in India of Iranian banks and the remaining settled in euros through an overseas bank.
“This will help UCO Bank boost its CASA (Current Account Savings Account ) and profitability,” Goel said, referring to the low-cost deposits. During the previous sanctions also, UCO Bank was solely holding the payments for Iranian oil that swelled the state-run lender’s profit to highest on-record in fiscal year 2013-14. The bank has been reporting losses since Iran sanctions were lifted in 2015.
Now, Iran will use the money to import goods ranging from food to medicines and settle the dues in Indian rupees. It will also draw money from these accounts to pay all costs, including rentals, salaries and other administrative expenses of its missions in India, they said.
Under the exemptions granted last month, the US allowed India to import as much as 300,000 barrels a day of Iranian oil for 180 days. That’s less than Iran’s average daily exports to the nation of about 540,000 barrels this year, and almost 450,000 barrels in 2017, shipping data compiled by Bloomberg show.


Switzerland Prepares Payments Channel

The Financial Times reported on Wednesday that Switzerland is close to launching an initiative to let companies sell food, medicine and medical devices to Iran using a payments channel that would be the first such mechanism to win Washington’s approval since it re-imposed sanctions against Tehran. 
According to the London-based paper, Berne’s humanitarian supplies plan — which is the subject of delicate ongoing talks with the US and Iran — comes as leading EU powers hope within weeks to set up a much-touted mechanism to finance broader trade with Tehran. 
The Swiss economic affairs department told the FT it was “striving” to set up the humanitarian payments channel “as soon as possible” but could not give a start date. “Discussions are still ongoing with US authorities, Iran and Swiss companies,” it said. 
Switzerland — which is not an EU member and has a large pharmaceuticals sector and a tradition of neutral diplomacy — has strong credentials to be a base for the mechanism, the paper noted. 
Meanwhile a senior Iranian lawmaker told Mehr News Agency that the two EU countries that were supposed to host the special payment mechanism for Iran( known as Special Purpose Vehicle) have buckled under mounting US pressure. 
According to Mostafa Safari Natanzi, head of the Majlis Foreign Relations Committee, in order to make the mechanism impervious to US sabotage, a new proposal has been floated and that is for the SPV to be hosted "within a judicial body" of a European nation. 
"If such a plan becomes operational, this mechanism will soon become ready." 
The European Union’s foreign policy chief Federica Mogherini said earlier this month, a system to facilitate non-dollar trade with Iran and circumvent US sanctions could be in place before the year is out.


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