First, they ignore you, then they laugh at you, then they fight you, and then you win. India’s initiative to eliminate Dollar from its bilateral and multilateral trade is following a similar trajectory. After Rupee-Rouble trade, now it seems that the time for Rupee-Rial oil trade has arrived.
Rupee-Rial oil trade – Iran wants to introduce local currency
According to a report by ThePrint, Iran is nudging India to introduce local currencies in bilateral trade. Apparently, Iran wants India to restart purchase of Iranian oil. For this purpose, they are asking Indians to treat them at par with Russia by paying them in Rial for buying Iranian oil. The introduction of Rupee in transaction also means that Iranians are willing to pay us in Rupees in exchange for the things they import.
Iranian President Ebrahim Raisi is expected to raise this issue during his one-to-one meeting with Indian Prime Minister Narendra Modi in Samarkand, Uzbekistan. The meeting will take place on the side-lines of SCO summit 2022 to be held from 15-16 September. Summit will also be attended by other heads of states such as Russian President Vladimir Putin and Chinese President Xi Jinping.
Not exactly out of the blue
At the current juncture of time, the demand of Rupee-Rial oil trade may look out of the blue, but there is a deep analytical thinking based on historical ties behind it. Not a long ago, Iran used to be the top oil supplier to India. Historically, Iran and Saudi Arabia have been in a neck-on-neck battle for becoming top oil supplier to India.
By the end of FY 2010-11, Iran was the second biggest oil supplier to India. Later, the ‘sanctions regime’ pushed it down the ladder. Only after the Obama administration signed the Joint Comprehensive Plan of Action (JCPOA) in 2015 with Iran, did the oil trade between both countries increase. In 2017, Iran became the 3rd biggest supplier of oil to India. Within one year, it replaced Saudi Arabia to become the 2nd biggest oil supplier.
American impact on bilateral trade
American uncertainty came back to bite the oil trade and the Trump administration’s new sanctions on Iran meant that Indian companies were reluctant to buy Iranian oil. It was a setback for Iran as well since at that time India was the second largest buyer of Iranian oil.
The sanctions hit overall trade as well and within a year 56 per cent decline was observed in bilateral trade. For a while India’s initiatives in Chabahar also seem to take a long halt, threatening India’s Eurasia and Central Asia ambition.
Things leading to end of Dollar
But Biden coming to power has proved to be net positive for India-Iran relations. Compared to Trump, Biden is less stringent on Iran. This is one of the reasons why bilateral trade between India and Iran is moving in a direction. And then the Biden admin decided to jump into the Ukraine-Russia crisis. They interfered not just through arms, but also through the sanctions regime.
Taking advantage of the dominance of the Dollar, they threw Russia out of the financial system dominated by them. Russia chalked out a new strategy, which was the introduction of local currencies in trade. Rupee-Rouble trade was proposed and RBI made it easier by internationalising the Rupee. But India is one of the many countries Russia asked to pay in local currencies. It is doing so with many other countries which include China as well.
Apparently, Iran whose prospects of staying aloof from the global world order is minimised has also been one of the worst sufferers of the sanctions regime. It also wants a way out, especially when America is busy increasing bonhomie with Gulf nations, its key rivals in Islamic world. Somehow, India is emerging as a key catalyst in the elimination of the Dollar from the international market.
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