Indian refiners have begun settling payments for recent Iranian oil purchases in Chinese yuan, utilizing a temporary waiver from US sanctions. Transactions are being routed through ICICI Bank's Shanghai branch to seller accounts also held in the Chinese currency, according to recent reports.
Why the Shift to Yuan?
The move allows Iran to circumvent the extensive US dollar-based financial system, which has been largely inaccessible due to long-standing US sanctions against Tehran. By accepting yuan, Iran can conduct trade outside the immediate reach of these restrictions, reducing the risk of funds being blocked or frozen.
Washington introduced 30-day waivers last month for certain purchases of Russian and Iranian oil, an effort to stabilize global oil prices amidst geopolitical tensions, particularly the US-Israeli conflict with Iran.
Details of Recent Trades
Earlier this month, state-run Indian Oil Corporation (IOC) acquired 2 million barrels of Iranian oil, marking its first such purchase in seven years. This deal, valued at approximately $200 million, involved the very large crude carrier Jaya. Additionally, India has permitted four vessels carrying Iranian oil to berth for Reliance Industries, with one, MT Felicity, already discharging its cargo.
An unusual payment arrangement was noted for IOC's purchase, with about 95% of the cargo's value paid against the supplier's notice of readiness—a document indicating the tanker's arrival in Indian waters. Typically, Indian state-owned refiners settle payments upon delivery or discharge for oil from sanctioned countries.
Broader Context of Yuan Payments
India has emerged as a significant buyer of Russian oil since the 2022 invasion of Ukraine led to widespread Western sanctions on Moscow. Indian refiners have also previously utilized the yuan to settle some of these Russian oil trades, indicating a broader trend of de-dollarization in energy transactions involving sanctioned nations.
While India had largely ceased Iranian oil imports since 2019 due to US sanctions, Chinese independent refiners, often referred to as "teapots," have consistently remained the primary buyers of Iran's oil exports during this period. IOC currently has no plans for further Iranian crude purchases following this initial transaction.