India’s government has decided to pay for its imports of Iranian oil in rupees.
The decision by one of the world’s strongest emerging economies, represents yet another undermining of the both the sanctions currently imposed on Iran by both the United States and the United Nations Security Council and the fiscal hegemony exercised over global oil trade by both New York and London.
The oil trades in both the New York Mercantile Exchange (NYMEX) and London’s Intercontinental Exchange (ICE) are currently denominated in American dollars.
According to a report in India’s The Telegraph newspaper, "Through this method, the path for India's national currency to enter the international currency market will be paved. India's Ministry of Finance has considered a method to resolve the tension over currency with Iran.
According to this proposal, oil buyers are allowed to open Letters of Credit in rupees and this Letter of Credit can be used by Iran to buy Indian products."
Under terms of the arrangement, Iran can buy Indian commodities including tea, rice, machinery, and engineering and technical services instead of using dollars, while Iran under terms of the arrangement can convert its surplus currency revenues from selling of oil to India into euros. Should Tehran endorse the arrangement it will mark the first time that the rupee will be utilized as an international currency beyond the dollar/euro zone.
By. Joao Peixe, Deputy Editor OilPrice.com
Joao is a writer for Oilprice.com