The Israel-Hamas conflict has severely damaged revival prospects of India’s exports to Iran, which dipped 47 per cent (year-on-year) to $567 million in April-October 2023, as resumption of oil imports from Tehran could now take much longer.

“If India decided to resume oil imports from Iran then exports to the country could increase ten-fold using the rupee-rial trade mechanism. But Tehran’s alleged support to the Houthis’ aggression in the Red Sea, on top of the continuing Russia-Ukraine war, has ensured that this will not happen any time soon. The US may not take direct action against the Indian government for trading with Iran but individual firms could be targeted,” a source tracking the matter told BusinessLine. 

Exports of tea, rice and pharmaceuticals, which hold a lot of potential in Iran, continued to fall in  April-October 2023 as there was very little rupee balance in the rupee-rial account. “India continues to import some agriculture products from Iran such as saffron which generates rupee balance, but it is very little. As oil imports, which accounted for most of India’s imports earlier, are still suspended, the rupee-rial mechanism is almost non-functional,” the source pointed out.

The rupee-rial payment mechanism, which enables India and Iran to trade in local currencies instead of the US dollar, was put in place first in 2012 to get around UN sanctions against Iran for allegedly pursuing nuclear weapons. Things normalised after Iran agreed to a Joint Comprehensive Plan of Action with the P5 + 1 (United States, Russia, China, France, Britain and Germany).

The payment mechanism was revived in 2018 when former US President Donald Trump withdrew from the JCOPA. Despite US sanctions Iran was India’s third largest crude supplier in 2018-19 with India’s total imports from the country at $ 13.52 billion and exports at $ 3.51 billion.

But once the Trump regime banned oil trade with Iran in mid-2019, India’s oil imports almost came to a stop. India’s overall imports from Iran declined 89.67 per cent (year-on-year) to $1.39 billion. In early 2022, when the Biden government was in talks with Iran on the JCPOA, India was hopeful that an agreement would be reached and the US sanctions will be lifted. 

“We were so happy because our economy and Iran have a lot of complementarities. But then the Russia-Ukraine war happened, with Iran seen as supporting Moscow. Now there are allegations that Iran is supplying drones to the Houthis. Geopolitics has sent things into a tailspin,” the official said.

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