India and Iran have agreed to settle some of their $12 billion annual oil trade in rupees, a government source said on Friday, resorting to the restricted currency after more than a year of payment problems in the face of fresh, tougher US sanctions.
India, the world's fourth-largest oil consumer, relies on Iran for about 12 percent of its imports or 350,000-400,000 barrels per day (bpd) and is Tehran's second-biggest oil client after China. But Washington has snapped tighter financial sanctions on Iran and wants Asia, Tehran's biggest oil market, to cut imports in a bid to pressure the Islamic nation to rein in its nuclear ambitions, which it suspects are aimed at making weapons.
Iran rejects the charge and says its programme is for peaceful means. India's central bank stopped one clearing mechanism in December 2010 for Iran payments and refiners finally managed to secure a route through Turkey's Halkbank in July 2011 but this could be vulnerable to the new US measures.
An Indian delegation has been in Tehran this week discussing options for payment and the source said the decision to pay in rupees was made after a meeting there. "The Central Bank of Iran will open an account with an Indian bank for receiving payment and settling its import," the source, who has direct knowledge of the matter, said, adding the new system will start "soon". The source did not specify the name of the Indian bank. But other sources have said that Iran could open an account with India's UCO Bank as it does not have any interests in the United States.