Rbi Prevents Indian Companies From Transacting With Iran Through The Asian Clearing Union

Indias central bank on Monday asked Indian importers to settle debts owed to Iranian

firms in currencies other than the dollar and euro, presenting somewhat of a mixed picture for the future of Indo-Iranian relations.

Since 1974, the two countries have conducted a majority of their trade through a clearing house called the Asian Clearing Union. The organizations purpose once involved removing the various costs of doing international business by having each nations central bank pay for debts through widely used currencies on behalf of its companies.

This past year, Irans use of the clearing house increased by more than 50 percent compared to last year after describing the clearing house to Indian and Iranian companies in 2009 as a way to sidestep the U.S. banking system altogether.

The U.S. Treasury has regularly raised the issue with India for more than a year, official sources told the Wall Street Journal. Pressure was stepped up following President Barack Obamas India trip in early November, where he publicly offered his support for Indias bid for a permanent seat on the U.N. Security Council.

And yet, the impact of Indias latest moves on its relationship with Iran and the rouge nations controversial nuclear program remains unclear.

Despite sanctions undertaken by the United States, the European Union, and other international actors, Iran has given no sign that it is willing to dismantle its nuclear program. Some believe Tehran will continue to find ways around the sanctions.

Major Indian firms, including Oil & Natural Gas Corporation have been exploring how to develop energy resources with Iranian partners. Reliance Industries was a major supplier of gasoline to Iran, which lacks adequate refining capabilities, before pulling back last year because of international restrictions.

India imports US$11 billion of crude oil per year from Iranroughly 14 percent of its entire crude oil demand, according to statistics provided by the government. Iran is Indias second largest supplier of crude oil, closely following Saudi Arabia.

India and Iran have also worked together in the past to achieve defense-related goals, including checking the Taliban in Afghanistan and Pakistan. The two have also announced infrastructure projects aimed at connecting Central and South Asian markets.

The Reserve Bank of India did not explicitly mention geopolitical concerns roused by the United States and other nations during its announcement of the latest change; it instead cited the difficulties being experienced by importers/exporters in transferring funds to Iran.

While transactions are effectively prevented in dollars and euros, firms may still trade in rupees and rial, respectively the currencies of India and Iran.

by: Dezan Shira & Associates

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