Indian exports to Iran are likely to take a big hit over the next few months and may even come down to zero if the new government decides not to resume oil imports from the country in adherence with the US economic sanctions, say exporters.

Ajay Sahai, Director-General, Federation of Indian Export Organisations (FIEO), said: “Assuming there is no breakthrough in the situation and the government sticks to the decision of not buying oil from Iran, whatever money is lying in the UCO Bank at the moment will get used up. We will not be able to sustain exports beyond four months. Virtually all exports to Iran will stop.”

Rajesh Paharia, an exporter of rice to Iran, agrees with Sahai. “Right now exports are taking place to Iran and it will happen till the day there is money in the special rupee payment account of the UCO Bank for transactions with Iran. However, if oil imports don’t restart and the money dries up, from where will the government have funds to pay exporters to Iran?” Paharia asks.

Although India’s exports to Iran were less than $3 billion last year, they could rise several-fold if the rupee payment mechanism is fully utilised, as per calculations made by exporters.

India stopped buying oil from Iran from May 2 after the US sanction waiver for buying Iranian oil expired and the Trump regime refused to extend it. When Iranian Foreign Minister Mohammad Javad Zarif was in New Delhi last week to discuss India’s plans on oil purchase, he was informed by his Indian counterpart Sushma Swaraj that he must wait till after the general elections for a decision on the matter. Because of banking sanctions imposed by the US for doing business with Iran, India and Iran have been carrying out trade through a rupee account in the country’s UCO Bank, which has limited exposure in the US. As per the mechanism, India deposits payments in rupee in Iran’s account for the oil purchased and then uses it to make payments to Indian exporters of goods to Iran.

“As per rough estimates, there would be around ₹12,000-15,000 crore in the rupee account. Even when we add some more to it for the payments that have to be made by the Indian government for the oil purchases made in the last two months, the money will not last for long,” said Paharia.

Uncertainty playing havoc

The uncertainty is playing havoc with prices of Basmati in the local market, which has gone down by at least 5 per cent recently, and if ambiguity about the future remains, things would get worse, he said.

“Basmati rice will be one of the first items to be affected as when the money starts drying up. Iran will prefer to buy other essential items such as drugs or medical equipment with it. The country buys about 30 per cent of our exports and if that stops one can imagine the industry’s plight,” Paharia added.

Many handicraft exporters, who have been carrying out business with Iran through banks other than UCO in Euros, say their exports have completely stopped. “Banks are not sending the required papers (GR forms) to the RBI for completion of a transaction as they are afraid of US sanctions. Because of this, exporters’ files are open throughout the country. We sincerely hope that when the government re-starts buying oil from Iran, it will help us export to Iran in rupee through the UCO Bank or any other bank it authorises,” said Satpal Pugla, an exporter based in Moradabad.

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