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India's dilemma: How to pay for Iranian oil
By Vijay Prashad

An explosion on Aurangzeb Road in New Delhi damaged an Israeli embassy car, and injured its occupants.Tal Yehoshua Koren, the wife of the defense attache at the Israeli embassy was seriously wounded. She is in critical care. She was on her way to pick up her children from their school. It is unusual for a diplomatic vehicle to be attacked on the streets of New Delhi. The Delhi police went into action. The international media wanted to know who had done the attack minutes after it was reported.

The police was wary. Let us conduct our investigation, they said. Israeli Prime Minister Benjamin Netanyahu went before his parliament and accused Iran of a terrorist act. "The elements behind these attacks were Iran and its protege, Hezbollah." Iran, he said, is "the largest terror exporter in the world" and Israel "would act with a strong hand." This was all the confirmation that BBC needed. It began to report the attack as an Iranian act against an Israeli diplomat on Indian soil.

Why would Iran conduct an attack on an Israeli diplomat in India, particularly as India is in the midst of trying to negotiate a delicate arrangement with Tehran to pay for Iranian oil? The question mystifies.

Iran is responsible for 12% of India's imported oil (see my India pivots, and pivots again, Asia Times, February 9, 2012). Over the past two years India has struggled to find a mechanism to pay Iran for this oil. Sanctions by the United States and the European Union as well as by the United Nations Security Council against Iran have complicated the market for Iranian oil. Until 2010, India used the facilities offered by the Asian Clearing Union (ACU), founded in 1974 as an outgrowth of the United Nations Economic and Social Commission for Asia and the Pacific.

To help countries economize on their foreign exchange reserves, the ACU allowed them to conduct bilateral barter and make payments using the Asian Monetary Units (currency units indexed to the US dollar and the euro that allowed countries to hold surpluses and deficits outside their formal foreign exchange reserves). In December 2010, under pressure from the US Treasury, the Indian government withdrew from the ACU facility (a Reserve Bank of India circular from December 27 noted that "all eligible current account transactions including trade transactions with Iran should be settled in any permitted currency outside the ACU mechanism").

The Indian government then turned between February to April 2011 to a complex mechanism using the Hamburg-based Europaisch-Iranische Handels Bank (EIH) via the German Central Bank and the State Bank of India. The procedure did not violate UN security council or European Union sanctions. With the end use for payments certificate provided by the State Bank of India, the US Treasury should have ben satisfied - the money was going toward payments for crude and not to facilitate Iran's nuclear program.

Nonetheless, pressure on German Chancellor Angela Merkel from the US mounted. "Treasury is concerned about recent reports that the German government authorized the use of EIH as a conduit for India's oil payments to Iran," the US government noted. "Treasury will continue to engage with both German and Indian authorities about this situation and will continue to work with all the allies to isolate EIH." On April 4, 2011, the US Treasury got its way. Germany broke the India-Iran link.

India then conjured up an arrangement with Turkey's Halkbank. Turkey, with deep economic ties with Iran, has abided by the 2010 security council restrictions but has refused the deeper US and European Union sanctions regime. The Turkish government owns a 75% stake in Halkbank, and has allowed it to be the conduit for countries like India to pay for Iranian oil. Mehmet Ozkan, who teaches international relations at the International University of Sarajevo, told me that Turkey is trying to develop an "independent line," following the UN sanctions but keeping itself apart from the harsher US and European Union sanctions.

Over the past year, US Treasury officials have visited Turkey to try and cut Turkey's links to Iran. Obama's December 31 tighter sanctions made it illegal for American firms to do business with those firms that dealt with Iran's Central Bank. Halkbank is relatively immune from the US financial system, and it is the main financial intermediary for the Turkish refiner Tupras. Nonetheless, as E Ahmet Tonak who teaches political economy at Istanbul Bilgi University told me, Halkbank had to accede to the strong US pressure, particularly after a US Treasury team visited Turkey in the past few weeks.

Indian and Iranian officials have been in dialogue over the past two weeks to circumvent the embargo of Iran's financial system. India does not have the flexibility of China, whose economic power gives it genuine independence. China pays for Iranian oil with the yuan, which it is trying to put forward as an international trading currency. India does not have that freedom.

In early February, the Indians and Iranians created a payments mechanism: India would pay 45% of its oil bill with rupees which would be held in the Kolkata-based UCO bank and paid out to two Iranian private banks, Bank Parsian and Karafarin Bank. The rest of the oil bill will be sorted out in time.

India hopes to use these rupees to boost exports from India to Iran. Currently trade between India and Iran is uneven, with only US$ 2.74 billion as Indian exports in a total trade bill of $13.6 billion. To boost the Indian exports, the government plans to send a delegation to Iran in the next few months. "A huge delegation will be going," said Commerce Secretary Rahul Khullar. Anup Pujari, Director-General Foreign Trade (DGFT), Union Ministry of Commerce, pledged to a gathering in Mangalore that this delegation was going to strike a deal.

The exporters should continue booking business with their Iranian counterparts. India wishes to export wheat and rice, tea, pharmaceuticals, iron and steel. The US has said that it would not sanction "food, medicine, medical devices. So from our perspective," US State Department spokesperson Victoria Nuland said, "this kind of trade would not be sanctioned." Or at least one should say, it will not be sanctioned for now. There was also talk that India could barter wheat for oil, but the country's Food Minister K V Thomas has not yet seen a formal proposal.

The stumbling block this week was over the payment mechanism. By Indian law, if Iran receives payment in rupees inside India it will have to pay a 40% withholding tax. The Indian government is under pressure from the refiners in India to forgive this tax. "Most likely the National Iranian Oil Company would not want to pay this high tax," said B Mukherjee, a director of the Hindustan Petroleum Corporation. "We clearly do not want to pay the tax as it will make our imports costlier. I might as well buy oil from somewhere else if this 40% stake is saddled on me."

In a major speech at the Center for Strategic and International Studies in Washington on February 6,India's Foreign Secretary Ranjan Mathai noted, "Iran is our near neighbor, our only surface access to Central Asia and Afghanistan, and constitutes a declining but still a significant share of our oil imports. For us, there are also broader and long-term geostrategic concerns that are no different from what we face elsewhere in the Asia-Pacific region. Our relationship with Iran is neither inconsistent with our non-proliferation objectives, nor is it in contradiction with the relationships that we have with our friends in West Asia or with the United States and Europe."

The US sees these trade relations as deeply troubling. The US is eager to make the Iranian sanctions a test of friendship with its allies. US State Department spokesperson Nuland said last week, "We are working with countries around the world, including India, that maintain strong oil relationships with Iran, encouraging all of them to reduce their dependence on Iranian crude."

The India-Iran deal is near completion. How the attack on the Israeli embassy car in New Delhi will impact on this is anyone's guess. Parochial political agendas once more threaten to interrupt a very important quest, which is to create trust and interdependence across the Asian continent and defuse any tensions that might lead to war. The sanctions regime is a fool's paradise, undermining the fuel paradise that Iran and India have sought to construct.

Vijay Prashad is Professor and Director of International Studies at Trinity College, Hartford, United States. This spring he will publish two books: Arab Spring, Libyan Winter (AK Press) and Uncle Swami: South Asians in America Today (New Press). He is the author of Darker Nations: A People's History of the Third World (New Press), which won the 2009 Muzaffar Ahmed Book Prize.

(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
FM
quote:
Originally posted by Wally:
India needs Iran more than Burnham needed Jagan. Iran keeps Pakistan in check. Without Iran then India will be facing attacks from Pakistan and Afganistan by Pakistani forces.


Like the USA need China.

Why did the US borrowed US $100 billlion from the Chinese to give to India as an aid package in return for their support?
Do you think that is enough for India to compromise their integrity?

The democrats are bankrupting the country.
FM
quote:
Originally posted by Ramakant_p:
India is an independent country and the USA cannot and will not tell India what to do.
India is on the verge of becoming the second most powerful country in the world after China.

By the way, Indians are still escaping in mass to the US and other anglo-white countries. This means that India doesn't look too promising to Indians at all.
FM
quote:
Originally posted by Ramakant_p:
India is an independent country and the USA cannot and will not tell India what to do.
India is on the verge of becoming the second most powerful country in the world after China.


India cusses the USA for relations with Pakistan and USA tells India dude if you join our circle of friends you cant continue to hunt with the hounds and run with hares. Now is India socialist or capitalist ? or is it undecided ?
FM
quote:
Originally posted by kidmost:
quote:
Originally posted by Ramakant_p:
India is an independent country and the USA cannot and will not tell India what to do.
India is on the verge of becoming the second most powerful country in the world after China.


India cusses the USA for relations with Pakistan and USA tells India dude if you join our circle of friends you cant continue to hunt with the hounds and run with hares. Now is India socialist or capitalist ? or is it undecided ?
India will correct her path and will follow their western masters
FM
World | Posted on Feb 17, 2012 at 04:52pm IST
Anti-India campaign gains ground in the US
India Treads Lightly Amid Accusations Against Iran
Kurt Achin | New Delhi

Indian police have yet to locate a suspect in a bombing attack on an Israeli vehicle that Israel blames on Iran. There are no easy options for India for getting tough with Iran.

Israel has made it very clear it believes Iran is responsible for the explosion that seriously wounded a defense attache's wife in the Indian capital. And it is working hard, discreetly, to bring about diplomatic retribution.

India's influential daily, The Indian Express, reported Friday Israel is seeking New Delhi's support for a measure by the United Nations Security Council condemning the attack and censuring Iran.

India is downplaying public comments by senior Thai officials that a bombing in Bangkok was caused by a device identical to the magnet bomb attached to the Israeli vehicle here in Delhi.

Delhi police spokesman Rajan Bhagat says that information is only attributable to the Bangkok police. He says Indian investigators have not compared the explosives yet, and are not commenting.

India says it will not contemplate any action against Iran unless and until there is concrete evidence implicating Iran in this week's attack. Still, the unambiguous accusation from Israeli Prime Minister Benjamin Netanyahu that Iran was behind the attack is already creating concern among members of a massive trade delegation scheduled to head to Iran this month.

"This is unfortunate," said Vijay Setia, president of the All India Rice Exporters Association. "This escalation will definitely adversely affect the business mood of the people. People feel afraid if something goes wrong. We are concerned with the escalation of tension."

India has refused to join Western economic sanctions aimed at discouraging Iran's nuclear program, which the United States and Israel are convinced is aimed at producing weapons of mass destruction. New Delhi says it will back U.N. sanctions, but not those of individual nations.

Trade considerations

India's decision to seek dramatically increased trade with Tehran has been seen by some Western observers as irritating and opportunistic. But Delhi-based international security analyst Uday Bhaskar says trade between rapidly growing India and Iran is an unavoidable reality.

"Iran is a major oil supplier, hydrocarbon supplier, for India," said Bhaskar. "There is a dependency which is impacting national interest directly. India would find it difficult to arrive at this black and white kind of resolution in terms of dealing with Iran. And unless we have a credible alternate supplier, for India to review this, would not be an easy proposition."

In fact, India has surpassed China to become Iran's biggest oil customer - obtaining more than 12 percent of its fuel from the Islamic Republic.

In a workaround of international sanctions, the two countries are looking at an arrangement that would permit India to purchase oil in its own currency, the rupee, deposited in an Indian bank account. The rate at which those rupees would pile up puts pressure on India to export even more of its products to Iran.

Analyst Bhaskar says the interdependency between the two countries is likely to keep bilateral diplomacy low-key if Iran is found to have a role in the attack.

"In the event that this is substantiated, I think India and Iran would have to do some quiet consultation on the subject," said Bhaskar.

Apart from economic concerns, India shares centuries of cultural ties with Iran - and perceives Iran as a crucial partner in stabilizing Afghanistan after the scheduled withdrawal of U.S.-led stabilization forces in 2014.
FM
quote:
Originally posted by Ramakant_p:
The US gave guns to Pakistan and they attacked India. Now The US wants the support of India to kill Muslims in the Middle East. India has a 200 million Muslim population. How can the Obama's administratiion be so arrogant and naive to think that INdia would support them?
India must convert to Christianity and become a good nation. Big Grin
FM
quote:
Originally posted by Lucas:
quote:
Originally posted by kidmost:
quote:
Originally posted by Ramakant_p:
India is an independent country and the USA cannot and will not tell India what to do.
India is on the verge of becoming the second most powerful country in the world after China.


India cusses the USA for relations with Pakistan and USA tells India dude if you join our circle of friends you cant continue to hunt with the hounds and run with hares. Now is India socialist or capitalist ? or is it undecided ?
India will correct her path and will follow their western masters


No one is holding India's feet to the fire, India has a choice but if India trades with Iran and expects US help in fighting terrorism much of which is funded by Iran then one need to not ask who is the FOOL !
FM
quote:
Originally posted by Ramakant_p:
The US gave guns to Pakistan and they attacked India. Now The US wants the support of India to kill Muslims in the Middle East. India has a 200 million Muslim population. How can the Obama's administratiion be so arrogant and naive to think that INdia would support them?


You idiots like to put your own spin on things. USA gave Pakistan military assistance to fight extremist Muslims and to suppress any such movement in Pakistan but Pakistan instead was more concerned with their border disputes with India so they ignored their Afghan and nothern regions growing terrorist groups and focussed in India instead which was a grave mistake. Even during the recent Afghan campaign pakistan remained committed to the pak india border and ignored it northern regions where extremist groups expanded .

Obama does want India to help fight these groups , they are simply saying that since India is threatened by them and at a higher risk then India has a choice to join the global operations to fight such groups .

Now in case you dont know , the 200 million muslims in India do not support the fundamentalism and extremism of these islamic groups .

Bangladesh is muslim , have been fighting Pakistan for decades and now infiltrating islamic extremist influences yet , they remain in close relations with India . Bangladeshis have not become arabized as Pakistan and some northern western regions of India where Indian muslims including the pak muslims who are indian have become arabized .

The problem is that India is still in the 1950's 1960's mindset with thier stupid failed Non Aligned bullsh1t and Third World Crap mentality. Remember the USA was in their cold war state of mind until these Islamic Terrorist Groups shook them up.

India is really f#@ked up internally so how can anyone expect them to know where they stand on the international . India is the world's biggest/largest f@#ked up democracy.
FM
quote:
Originally posted by kidmost:
quote:
Originally posted by Ramakant_p:
The US gave guns to Pakistan and they attacked India. Now The US wants the support of India to kill Muslims in the Middle East. India has a 200 million Muslim population. How can the Obama's administratiion be so arrogant and naive to think that INdia would support them?


You idiots like to put your own spin on things. USA gave Pakistan military assistance to fight extremist Muslims and to suppress any such movement in Pakistan but Pakistan instead was more concerned with their border disputes with India so they ignored their Afghan and nothern regions growing terrorist groups and focussed in India instead which was a grave mistake. Even during the recent Afghan campaign pakistan remained committed to the pak india border and ignored it northern regions where extremist groups expanded .

Obama does want India to help fight these groups , they are simply saying that since India is threatened by them and at a higher risk then India has a choice to join the global operations to fight such groups .

Now in case you dont know , the 200 million muslims in India do not support the fundamentalism and extremism of these islamic groups .

Bangladesh is muslim , have been fighting Pakistan for decades and now infiltrating islamic extremist influences yet , they remain in close relations with India . Bangladeshis have not become arabized as Pakistan and some northern western regions of India where Indian muslims including the pak muslims who are indian have become arabized .

The problem is that India is still in the 1950's 1960's mindset with thier stupid failed Non Aligned bullsh1t and Third World Crap mentality. Remember the USA was in their cold war state of mind until these Islamic Terrorist Groups shook them up.

India is really f#@ked up internally so how can anyone expect them to know where they stand on the international . India is the world's biggest/largest f@#ked up democracy.

An abie diss donk hay ah di lilest, maybe abie coolies ah juss "f@#ked" up.
FM
India resolute on Iran oil imports

The Indian establishment’s nerves didn’t give way on Iran after two major assaults this week. There have been hardly any worthwhile takers in Delhi — except the famous Friends of Israel brigade in our media — for the smear campaign that Tehran’s agents are scurrying around the world pasting plastic bombs on Israeli diplomats. One thoughtful Indian daily even wondered if the Israelis aren’t doing this to themselves in a supreme act of theatrics, which intelligence agencies all over undertake in certain situations. (Which by no means can be ruled out, since as Home Minister P Chidambaram said, these are ’sophisticated’ devices.)

Second, Delhi has correctly sized up the import of Iran’s latest announcement on its nuclear ‘achievements’ — developing a new generation of centrifuges, augmenting the capacity from 6000 to 9000 centrifuges and loading the Tehran research reactor with domestically-produced fuel. Simply put, these are diplomatic foreplays even as talks are scheduled to begin between Iran and the so-called ‘5+1â€ē.
What is striking is the Indian sources telling Bloomberg UTV that these histrionics relating to Iran would in no way affect its crude oil imports from Iran — in essence, that “Indian position on Iran remains unchanged and no directives have been given to [Indian] oil companies to diversify crude sourcing. And a sanction can create a chain reaction that will severely impact the oil marketing companies (OMCs) and the refining space.”
Economic considerations prevail in the Indian calculus, obviously, and Indian sources have rebuffed the continuing, blatant western pressure tactic. Just as well.
The fact of the matter is that Brent crude remained above 120 dollars in Singapore today in the light of persistent supply worries. And this, despite Tehran clarifying that is not enforcing an embargo of its own on European buyers — at least, not as yet. Something like 70 refineries in Europe may have to be shut down if they can’t find alternate sources for Iran’s ’sweet’ crude.
Delhi would also factor in that the US-Iran standoff has always been surreal. Amidst the cacophony in the media, all indications are that the Barack Obama administration is not interested in a military encounter with Iran. The US officials have been consistently dousing the enthusiasm of hardliners on this score, the latest being the testimonies by two key officials at the hearings of the US Armed Forces Committee in Washington on Thursday.
Posted in Diplomacy, Politics.

Tagged with India-Iran, Iran oil sanctions, US-Iran standoff.

By M K Bhadrakumar – February 17, 2012
FM

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