With UAE refusing to route its payments for Iranian crude oil, India has decided to pay its second largest oil supplier in rupee.
"Finance Ministry is drawing up a note for the Cabinet on payments for Iranian oil in rupee," an Indian official said, Financial Express reported on Tuesday.
Under the proposal, National Iranian Oil Company (NIOC) will open rupee account with Indian banks and can use the money to purchase non-strategic items such as railroad imports and buying commodities. It cannot however use the money to invest in India or buying shares or companies.
The ministry is preparing a list of what Iran can do with the money and what it cannot.
The official said Reserve Bank of India, which had last December discontinued a long-standing mechanism of payment through central banks, had earlier opposed payments for Iranian oil in rupee but has now relented.
India had in February started making euro payments through an Iranian bank based in Germany. But under US pressure, Germany soon stopped accepting money from India for onward transfer to Hamburg-based EIH Bank, sending India to the doorsteps of the UAE.
The Indian government explored the possibility of Indian oil firms opening accounts in banks like Dubai-based Noor Islamic Bank for direct transfer of money to Iran. But UAE also refused to route payments.
New Delhi also approached Turkey but failed to get any response, the official said.
India imports 12 million barrels of crude oil every month from Iran, which is the nation's second-largest supplier after Saudi Arabia.
The problem began after the Reserve Bank of India (RBI), on December 23, did away with the Asian Clearing Union (ACU) mechanism for paying for Iranian crude oil imports, which make up for 12 percent of the nation's oil needs.
In February, it began clearing past dues for Iranian oil imports by making euro payments through German-based Europisch-Iranische Handelsbank AG (EIH Bank). About €1.5 billion had been paid through EIH when Germany refused to accept any further payments for the purpose.
