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21 January 2012 - 21:03

Iran and India have agreed to settle part of their annual USD 12-billion oil trade in rupees as a means of circumventing new US sanctions against Iran's oil and financial sectors.

An Indian government source told Reuters that the two countries have been using a Turkish bank as intermediary to settle part of the payment for more than a year but still face problems in paying for Iran's oil.

"[In the new system,] the Central Bank of Iran will open an account with an Indian bank for receiving the payment…. The system will start working soon,” the source who spoke on condition of anonymity added.

The source did not specify the name of the Indian bank, but other sources have said that Iran could open an account with India's UCO Bank as it does not have any US ties.

Indian refiners began using Turkey's Halkbank in July 2011 to pay for Iranian oil but this route could be vulnerable to the new US measures.

The source, however, added that in addition to rupee payments, Indian refiners will continue to make payments through the current mechanism using Halkbank "as long as it continues."

An Indian delegation was in Tehran this week, discussing possible payment options. The source continued that the decision to pay in rupees was made after a meeting there.

The government source went on to say that Iran has agreed to step up imports from India, which added up to some USD 2.7 billion in 2010-11 and including rice and tea.

"This will cushion them (Iran) to some extent from exchange rate volatility," the source added.

India is the world's fourth-largest oil consumer country which supplies about 12% of its oil imports, or 350,000-400,000 barrels per day, from Iran. This makes the country, Tehran's second-biggest oil customer after China.

The US and its European allies accuse Iran of having a covert military nuclear program and have convinced the UN Security Council to pass four rounds of sanctions against the country.

On December 31, 2011, US President Barack Obama signed into law new sanctions which aim to penalize countries dealing with Iran's Central Bank or importing Iran's crude.

Tehran has vehemently rejected the accusations saying that as signatory to Non-Proliferation Treaty it has full right to peaceful use of the nuclear energy.
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