India's letter of credit (L/C)-reliant tea exports to Iran are likely to be affected by the Reserve Bank of India's (RBI) circular that has already made the importation of Iranian oil difficult.

Tea industry representatives are concerned and are lobbying the government to find a solution to the L/C problem.

Scope widening

The central bank recently issued instructions that imports of oil from Iran must be settled outside the Asia Clearing Union mechanism (DC World News, 31 December 2010).

Subsequently, the scope of those instructions was extended to cover all current account trade with Iran.

L/C shortage

Tea export trade with Iran is substantially transacted on L/C terms via major Indian commercial banks.

Following the RBI circular, these banks have reportedly become reluctant to honour L/Cs for tea trades with the Islamic republic.

Emerging market

Iran is emerging as a major market for Indian tea, so industry groups are already lobbying government to find a solution to the L/C shortage.

An Indian delegation has already been sent to Iran to attempt to solve the problem of Indian customers paying for Iranian oil.

Tea industry representatives hope that delegates will also search for solutions to the L/C problem for tea producers and other Indian traders who deal with Iran.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.