India will use escrow accounts of five Iranian banks held with UCO Bank to deposit money for oil purchases from the Middle East producer to overcome U.S. sanctions, according to people with knowledge of the matter.
Iran will use part of the deposits for purchasing essential goods from India and to meet expenditure incurred by its diplomatic missions in the South Asian nation, the people said, asking not to be identified because the information isn’t public. All spending will be in Indian rupees.
Continued supplies are crucial for India, a country that imports nearly 80% of its annual crude requirement, as Tehran offers better credit terms than other Middle East oil producers and, in the past, has accepted payments in Indian rupees, rather than U.S. dollars. The south Asian nation purchased crude worth about $9 billion from Iran in the financial year ended March 31.
The payment mechanism will allow India to continue oil purchases despite sanctions as it fulfills President Donald Trump’s goal to choke money going directly to Iran. Washington has also granted an exemption for India. Refiners such as Indian Oil and Mangalore Refinery & Petrochemicals will make payments after the mechanism is officially notified, the people said.