Falling Rupee Reserves of Iran

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With an aim to caution Iran՚s falling rupee reserves with Indian banks, Indian merchants have almost entirely stopped signing new export contracts with Iranian buyers. There has been a significant depletion in the Iran՚s rupee reserves in India՚s UCO and IDBI Bank, the two lenders having authority to facilitate rupee trade.

Location of Iran

Overview

  • The Ministry of External Affairs informed earlier in 2020 that India is no longer involved in the Farzad-B gas field project of Iran due to reasons such as Iran՚s uncertain finances, policy changes by the Iranian government and the USA sanctions situation.
  • In 2020 a bill was passed by the Iran which allowed the slashing of four zeros from the Rial thereby authorising its replacement with the toman (redenomination) , another basic unit of currency.
  • Iran has not been able to use US dollars to transact oil sales due to the USA sanctions.
  • In May 2019, India stopped buying Tehran՚s oil after a US sanction waiver expired.
  • Iran՚s rupee reserves have fallen after 22 months of no crude sales.
  • Iranian oil accounts for around 90 % of India՚s imports among the Islamic nation.
  • India was Iran՚s leading oil client until mid-2018 after China.

Implications

Falling Indian Exports

  • In 2020, India՚s overall exports to Iran fell 42 % as compared to 2019 to USD 2.2. billion.
  • The fall in exports have continued in 2021 to USD 100.20 million which is more than halved from the year 2020.

Exporters՚ Apprehensions

Uncertainty among the exporters regarding the payment for new shipments.

China՚s Growing Influence

Deal signed between Iran and China would help China in expanding its presence in banking, telecommunications, ports, railways including dozens of other projects.

Pakistan՚s Influence

  • In the Middle-east region Pakistan is very active.
  • It uses the platform of Organisation of Islamic Cooperation (OIC) .
  • Pakistan has been continuously trying to get support on the Kashmir issue due to its strong ties with the Arab countries.

Avoiding Tension

India seeks to isolate itself from any sectarian tensions in the region since it is home to sizable populations of both Shia and Sunni Muslims. It cannot be in the Indian interest to either completely break off ties with Iran or go against the United States outright.

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