Senior central bankers from India and Iran are to meet this New Year to find a way for India to pay for crude oil imports from Iran.

The meetings follow a December decision by the Reserve Bank of India (RBI) that means that no new letters of credit (L/Cs) can be issued for Indian imports of Iranian goods.

European pressure

Up until 2010, payments for Indian imports of Iranian crude oil were facilitated via the Tehran-based Asian Clearing Union (ACU) in euro-denominated transactions.

However, the RBI has now been asked by the European Central Bank to provide certificates proving that the euro is not being used to import products, including Iranian crude oil, that are proscribed by US sanctions.

L/C stoppage

The result is that Indian buyers can no longer issue L/Cs to buy crude oil from Iran, which is its second largest source of oil imports.

The euro has been used by the ACU since 2008 when sanctions imposed by Washington barred US dollar denominated transactions.

Options

Central bankers from India and Iran are expected to meet early in the New Year to attempt to resolve this issue.

One option may be to arrange payment mechanisms under which Iranian crude oil can be purchased in transactions denominated in either the Japanese yen or the Iranian rial.

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