Indian refiners have begun settling payments for recent purchases of Iranian oil in Chinese yuan, leveraging a temporary waiver from US sanctions. The transactions are being routed through ICICI Bank's Shanghai branch, with funds directed to seller accounts also held in the Chinese currency.
Strategic Shift Amid Sanctions
This payment mechanism comes after Washington introduced 30-day waivers last month, allowing limited acquisitions of Russian and Iranian oil. The move was intended to help ease global oil prices, which have been impacted by geopolitical tensions. For Iran, receiving payments in a currency other than the US dollar is crucial for bypassing long-standing American sanctions.
Sources indicate that the use of yuan simplifies transactions through existing banking channels that remain open for trade with Iran. This contrasts with the complexities previously faced by potential buyers due to difficulties in arranging payments.
Recent Oil Deals and Unusual Arrangements
Earlier this month, state-run Indian Oil Corporation (IOC) completed its first purchase of Iranian oil in seven years, acquiring 2 million barrels aboard the very large crude carrier Jaya. The deal was valued at approximately $200 million. Additionally, Reliance Industries has facilitated the berthing of four vessels carrying Iranian oil, with one, MT Felicity, already discharging its cargo.
An unusual aspect of the IOC transaction was that about 95% of the cargo's value was paid against the supplier's notice of readiness, a document indicating the tanker had entered Indian waters. Typically, Indian state-owned refiners settle payments upon delivery or discharge, especially when dealing with oil from countries under Western sanctions.
Broader Implications for Indian Energy Imports
While this marks a significant development, Indian Oil does not currently plan further purchases of Iranian crude. India has largely avoided Iranian oil imports since 2019 due due to comprehensive US sanctions, during which Chinese independent refiners became the primary buyers of Iran's exports.
This isn't the first instance of India diversifying its currency use for energy imports. India has also been a major buyer of Russian oil since the 2022 invasion of Ukraine led to extensive Western sanctions against Moscow, and Indian refiners have similarly used the yuan to settle some Russian oil trades.