punjabimunda
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An aggressive posturing by India, including mounting an export delegation in mid-March 2012 to Iran to promote Indian exports has met with resistance from the United States. India's direct trade to Iran under rupee payment may now be in the realm uncertainty. Besides, even transactions via Dubai-UAE from Iran have been put under bizarre suspense. Instant interbank payments of debits and credits of 20 Iranian banks with the rest of the world including Dubai, have come to a halt with the switching off of the Society for Worldwide International Financial Transactions' ( SWIFT) messaging facility around March 16.
Normal trade via Dubai channels will be stuck till ancient alternative interbank telex confirmation system is restored. Only "unconventional" payment transfers between Iran and Dubai may be feasible now.
Basmati rice exports of $500 million in 2011-12 to Iran through Dubai intermediaries remain unpaid roughly by 30% ($145 million) due to huge depreciation of Iranian local currency. Further currency deprecation is also imminent. Raw sugar (60,000 tonnes) and soymeal (150,000 tonnes) contracted for export to Iran through Dubai buyers is exposed to being trapped until the haziness on these transactions is cleared. Any future business may have to be kept in abeyance. Shipping insurance by P&I clubs or any other insurers and their further hiring without any restrictions or prohibition is another matter that needs to be resolved.
India's UCO bank has set up a rupee payment mechanism with Iran's Parsian Bank for 45% of oil imports being allocated for Indian exports. Parsian Bank requires 120% or more margin deposit from importers before establishing a letter of credit (LC) - that is worse than a cash deal for importers. The arrangement is so nebulous that UCO Bank cannot negotiate shipping documents under LC at its Indian counters. The role of UCO bank is limited for forwarding documents and it is the Iranian counterparties-Parsian Bank, oil ministry and the importer-who authorize payments. In commodity trading where prices and exchange rates are highly volatile, Indian exporters are at the mercy of Iranian side to "hope" for payments. UCO bank is also in the danger of being de-SWIFTED.
Bilaterally, LC payment arrangements as per latest UCP (Uniform Customs and Practices) for international LCs need to be concluded. Otherwise, all "excel sheet profits" of exporters will disappear. Though Indian traders may require partial advance payment as security, will Iranians agree until there is well defined process for settlement of disputes?
Rules, procedures, applicable law, venue of dispute resolution and place of enforcement of award, etc. need to be agreed under rupee payment to ensure balance of convenience between the buyer and the seller. Government Trading Company (GTC) of Iran lists only nine countries for wheat import while Indian origin is conspicuously absent. For much-publicized possibility of Indian wheat export of three million tonnes, Iran has to take a view on Indian phyto sanitary issues for compliance with their quarantine regulations.
Pending this, Iran has abruptly covered more than two million tonnes of wheat from the US, Australia, Canada, Russia, Brazil, Kazakhstan, implying that Iran's supply-demand mismatch (production 14 million tonnes and consumption 16 million tonnes) projected for 2012-13 has already been squared up. (And these deals are sanctified by 'humanitarian' sentiments between the US and Iran) To what extent payment mechanisms between these preferred nations and Iran are workable remains a matter of speculation. GTC may now only require to bridge the potential shortfall in its new wheat crop due in May2012.
Iran also needs significant imports of Basmati rice (1121 variety), corn, raw sugar, soy meal, pharmaceuticals, iron and steel items against its crude oil exports but this requires "quiet" diplomacy for smoothening the contracting, shipping, payment and legal issues.
But surely doing business with Iran needs a lot of will power, patience, perseverance and resilience as there are many known unknowns.
Normal trade via Dubai channels will be stuck till ancient alternative interbank telex confirmation system is restored. Only "unconventional" payment transfers between Iran and Dubai may be feasible now.
Basmati rice exports of $500 million in 2011-12 to Iran through Dubai intermediaries remain unpaid roughly by 30% ($145 million) due to huge depreciation of Iranian local currency. Further currency deprecation is also imminent. Raw sugar (60,000 tonnes) and soymeal (150,000 tonnes) contracted for export to Iran through Dubai buyers is exposed to being trapped until the haziness on these transactions is cleared. Any future business may have to be kept in abeyance. Shipping insurance by P&I clubs or any other insurers and their further hiring without any restrictions or prohibition is another matter that needs to be resolved.
India's UCO bank has set up a rupee payment mechanism with Iran's Parsian Bank for 45% of oil imports being allocated for Indian exports. Parsian Bank requires 120% or more margin deposit from importers before establishing a letter of credit (LC) - that is worse than a cash deal for importers. The arrangement is so nebulous that UCO Bank cannot negotiate shipping documents under LC at its Indian counters. The role of UCO bank is limited for forwarding documents and it is the Iranian counterparties-Parsian Bank, oil ministry and the importer-who authorize payments. In commodity trading where prices and exchange rates are highly volatile, Indian exporters are at the mercy of Iranian side to "hope" for payments. UCO bank is also in the danger of being de-SWIFTED.
Bilaterally, LC payment arrangements as per latest UCP (Uniform Customs and Practices) for international LCs need to be concluded. Otherwise, all "excel sheet profits" of exporters will disappear. Though Indian traders may require partial advance payment as security, will Iranians agree until there is well defined process for settlement of disputes?
Rules, procedures, applicable law, venue of dispute resolution and place of enforcement of award, etc. need to be agreed under rupee payment to ensure balance of convenience between the buyer and the seller. Government Trading Company (GTC) of Iran lists only nine countries for wheat import while Indian origin is conspicuously absent. For much-publicized possibility of Indian wheat export of three million tonnes, Iran has to take a view on Indian phyto sanitary issues for compliance with their quarantine regulations.
Pending this, Iran has abruptly covered more than two million tonnes of wheat from the US, Australia, Canada, Russia, Brazil, Kazakhstan, implying that Iran's supply-demand mismatch (production 14 million tonnes and consumption 16 million tonnes) projected for 2012-13 has already been squared up. (And these deals are sanctified by 'humanitarian' sentiments between the US and Iran) To what extent payment mechanisms between these preferred nations and Iran are workable remains a matter of speculation. GTC may now only require to bridge the potential shortfall in its new wheat crop due in May2012.
Iran also needs significant imports of Basmati rice (1121 variety), corn, raw sugar, soy meal, pharmaceuticals, iron and steel items against its crude oil exports but this requires "quiet" diplomacy for smoothening the contracting, shipping, payment and legal issues.
But surely doing business with Iran needs a lot of will power, patience, perseverance and resilience as there are many known unknowns.
