22-01-2019

Shipping, insurance, document exchange pose challenges for India-Iran trade

Full-fledged Indian exports to Iran are expected to resume with the UCO Bank activating the rupee payment mechanism to circumvent US-imposed sanctions against the Islamic nation. But the two sides are still struggling to sort out glitches in shipping, insurance and exchange of documents, say officials and exporters.

“The Centre and banks have now clarified on the list of goods that can be classified as non-sanctioned and exported to Iran. This includes a whole range of products from food and leather goods to pharmaceuticals and textiles. Only non-essential items such as automotives and gems & jewellery and dual-use goods are prohibited. There is a lot of scope for Indian exporters as the entire oil trade will be in rupee this time,” a government official told BusinessLine.

The problems such as rising shipping costs, unavailability of insurance cover and uncertainty on exchange of documents with SWIFT not working have to be sorted out immediately and both governments are working on it, he added.

The Donald Trump administration re-imposed economic sanctions on Iran in May 2018 after withdrawing from the multilateral deal signed in 2015.

Set of sanctions
The first set of sanctions imposed by the US in August 2018 restricted Iran’s purchase of US currency while the second set in November restricted sales of oil and petrochemical products from Iran. India was one of the eight countries given a six-month waiver to continue its oil trade with Iran, but with the caveat that it should lower its imports.

Exporters are hopeful that their shipments would now rise steeply as Iran would need to buy enough goods from India to use the rupee payment for oil imports deposited in the UCO Bank.

“Last year, our exports to Iran were worth $2.7 billion. This year we expect it to be at least $3.5 billion,” said Ajay Sahai, Director-General, Federation of Indian Export Organisations (FIEO). India imported oil worth $10 billion from Iran last year and imports this year have already crossed last year’s figures.

Shipping has turned out to be the most immediate problem for Indian exporters as a number of Iranian shipping lines have already increased their charges taking advantage of the fact that there is no competition from foreign ships because of the US sanctions, points out Sahai.

“We have taken up the matter with officials of the Iranian Chamber of Commerce and asked them to instruct their shipping companies not to exploit the situation and charge the usual rates. They have assured us that they would do so,” Sahai said.

Since insurance is also on the sanctions list, it is difficult to find marine insurers for the shipments. Similarly, as SWIFT, the international financial messaging system, has also decided to adhere to US sanctions, exchange of documents for exports would also be a problem. “We hope Iran will help us with insurance and India Post can chip in to sort out the issue of exchange of documents. As trade between the two countries settles down and volumes go up, these areas will get ironed out,” Sahai added.
Source: The Hindu Business Line

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