Threat to India due to re-imposition of sanctions on Iran

US sanctions on Iran will come into effect from November 2018. As a result, the following
issues will concern India:

 Discussions with Iran regarding continuing oil trade: As per media reports,
discussions were held with Iran recently, regarding exploring means to continue oil
trade and discuss new banking channels for payment of crude export. Iran forms a
major portion of India’s crude basket, and any disruption to crude supply will further
add to the rising fuel prices in the country.
 Stopping of payment for crude export from Iran: SBI has informed refiners it
would not handle payments for the crude from November 2018. Some sanctions
took effect after a 90-day “wind-down” period ending on August 6th, and the rest,
notably affecting the petroleum sector, after a 180-day period ending on November
4th, 2018. Large corporate branches handling oil import payments to Iran have been
told to inform Indian refiners that the bank will not be able to entertain such
transactions from November 4th if the existing sanctioned regime continues. All
branches have been directed to refrain from taking such new customers.
 Ally against Pakistan and China: Iran has been an important ally for India against
Pakistan and China. China, through its String of Pearls strategy, wanted to isolate
India. However, India’s strategic interest in Chabahar Port in Iran, which also
provides access to Afghanistan, is crucial for India’s interest.
 Completion of transactions: Two banks, IndusInd Bank and UCO Bank, which
facilitate exports to Iran, had asked exporters to complete their financial
transactions with Iran by August 06, 2018. Indian exporters mostly receive
payments in rupees for exports to Iran, under a mechanism devised in 2012 when
banking channels were restricted due to the US sanctions. India had implemented
a barter-like scheme that allowed it to make some oil payments to Tehran in
rupees. Indian companies receive payments for exports to Iran using the oil
payments held in rupee balances.
 Opening of branches in India by Iranian banks: In 2017, it was reported that
three Iranian private banks, namely Saman Bank, Parsian Bank and Bank
 Pasargad, planned to open branches/ representative office in India. Also, UCO
Bank had showed interest in setting up shop in Iran. However, if the sanctions are
re-imposed, such opening of branches may be delayed/ not happen.
 Fresh accretion of NPAs in ‘oil & gas’ sector: Iran is presently India’s third
biggest supplier (after Iraq and Saudi Arabia), and sanctions on trade may result
in Indian oil companies’ supply of crude getting delayed/ stopped. As a result, loan
servicing to banks may be affected, resulting in increasing NPA levels in the sector.
Farzad-B gas field was discovered by ONGC Videsh Ltd and the company has led
the development of the field. Sanctions may result in large losses to the company
which may affect its loan servicing capabilities.
 Exim Bank’s exposure in development of Chabahar port: Exim Bank’s
exposure towards development of Chabahar port may be affected due to re-
imposition of sanctions. In February 2016, Union Cabinet had given its approval to
the proposal of the Ministry of Shipping for provision and operationalization of credit
of 150 million USD from EXIM Bank for development of Chabahar Port in Iran.

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