India and Iran are deliberating on the details of a mechanism that would enable India to pay for its oil import from Iran in rupee. The two countries decided to go ahead with the idea after the Trump administration had granted a 180-day exemption on Iranian oil and energy sanctions to India.
The sanctions will kick start from Monday. India is expected to stimulate a previous arrangement of making payments in an account with UCO Bank in India. Since the bank does not have any international exposure, it would be safe from any sanctions.
Interestingly, earlier, the oil payment proceeds were divided under two heads where 45 per cent of the payment was made in Indian rupees at UCO Bank, while 55 per cent was paid in Euros. But this time, Tehran has agreed to take the entire amount in Indian currency itself. The funds are expected to be used for the imports from India.
The agreement would mean that even if Iranian banks are banned from the SWIFT payment systems (SWIFT stands for the Society for Worldwide Interbank Financial Telecommunications which is a messaging network that financial institutions use to securely transmit information and instructions through a standardized system of codes), India will be able to pay for its oil imports from Iran. In addition to Iran's energy sector, the second round of economic sanctions will be aimed at shipping, shipbuilding, and financial sectors.
According to The Times of India, the arrangement was reached after a thorough round of discussion with both Iran and US administrations. Brian Hook, a senior US official, confirmed the development and said that the countries who would continue their economic engagements with Iran would have to set up escrow accounts.
He added that "The escrow accounts that are being created for those nations that need to continue importing Iranian oil deny Iran hard currency, and it denies Iran any revenue from oil sales. Any time Iran sells oil, that money goes into an escrow account in the importing nation's bank, and Iran has to spend down that credit."