To Save The Rupee, India To Maintain Oil Exports From Iran

Michael Teague  |

Assailed by an anemic rupee and a ballooning trade-account deficit, the Indian government has made a number of significant interventions to provide support to the country’s economy in 2013.

Most of these efforts have centered on gold. On July 31, the government set a cap on the amount of gold that could be imported into the country for 2013 at 845 metric tons, as part of a wider effort to limit imports of non-essential item, and the move was just one in a series of measures that specifically targeted the yellow metal.

Until recently, India was the world’s largest importer of gold, but the commodity is not the only driver of inflating current-account deficits- oil imports also play a large role.  India, despite its size, is not a major energy producer, a fact that forces the country to purchase is crude in the far more expensive US dollar.

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Indeed, for this reason, the US has given waivers to countries such as China, South Korea, and India to purchase their oil from neighboring Iran. India has been a major US ally since the 1990s, but the ratcheting up of sanctions against the Iranian government, economy (and citizens) over the last decade or so has caused some tension between the two, despite close cooperation over other geopolitical issues such as Afghanistan.

On Tuesday, India’s oil minister was said to be considering a plan to maintain and perhaps increase its imports from Iran in an attempt to combat the country’s currency problems.

With an added 11 metric tons of crude imports from Iran in addition to the 2 million tons it has already imported so far during the fiscal year, India could save up to $8.5 billion on crude. India and Iran have established a barter agreement according to which it purchases Iranian crude, which it pays for by depositing rupees into a bank account shared by the two countries. Iran gains from the deal as the crude payments essentially foot the bill for its imports of much needed goods from India.

Sustaining crude imports from Iran, however, comes at a sensitive time. The regime in Tehran is currently involved in a regional proxy war against Western clients in Syria, and the West has been trying to derail the country’s alleged nuclear weapons program for years. Any relief from sanctions could benefit the Iranian regime and invalidate significant portions of the overall sanctions exercise.

But India imports some 75 percent of its energy, and has never been entirely worried about US retaliation for cooperating economically with Iran.

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