India will use five escrow accounts in Iranian banks to pay for deliveries of Iranian crude oil amid U.S. sanctions, Bloomberg reports, citing sources close to the situation. The accounts are in the name of state Indian lender UCO Bank.
The payments will be made in Indian rupees in a bid to avoid punitive action from Washington, the sources also said. Also, the deposits are spread across five banks to reduce risk in case Washington decides to add more Iranian banks to its sanction list.
“We already have 15 Iranian bank accounts, out of these five have come under secondary sanctions,” the managing director of UCO Bank said yesterday. He also said, however, the other 10 are still good to use for bilateral transactions.
Iran, according to the Bloomberg sources, will use the money to cover the expenses of its diplomatic missions in India, and to buy essential goods.
The information should not come as a surprise despite the United States’ efforts to distance India from Iran and wean it off its oil. One of the world’s top consumers of crude imports almost 80 percent of the oil it guzzles, and it is extremely vulnerable to price shocks, so Iranian crude remains vital for India.
Since the price of the oil it buys is of the utmost importance, Iran’s favorable credit terms and lower prices are certainly an attractive alternative to a long and difficult process of finding other—and costlier—sources of the commodity. Despite higher intake of Saudi and U.S. oil, completely replacing Iranian crude has proven more than just tricky.
In recognition of the fact, Washington granted India, along with another seven large Iran oil importers, a six-month waiver from the sanctions with the caveat these importers were expected to reduce their intake of Iranian crude further.
By Irina Slav for Oilprice.com
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And rather resort to escrew accounts to pay for its imports of Iranian crude, India could easily use a barter trade agreement it has with Iran to supply Iran with essential goods in payment for oil imports. Either way will bypass US sanctions. Turkey is also using barter trade of goods-for- oil with Iran.
Moreover, Iranian President Rouhani confirmed a few days ago that Iranian oil exports have actually improved despite the sanctions. The confirmation of Iran’s Central Bank that Iran’s revenues from crude oil and oil products surged by 55% between March and October compared to the same period of the previous year is another evidence that US sanctions have failed.
The issuing of US sanction waivers to eight countries including India who didn’t need them in the first place and who would have continued buying Iranian crude with or without waivers is the latest admission by the Trump administration that their zero exports option is beyond their reach and that the sanctions are doomed to fail. Moreover, renewing the US sanction waivers in May 2019 or ending them is irrelevant to the global oil market and prices. Still there is a big possibility that waivers will be extended if only to be used as a fig leaf by the Trump administration to cover the failure of their zero option and the whole US sanctions against Iran at large.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London