The Reserve Bank of India (RBI), India’s central bank, announced that it will no longer clear payments for purchases of Iranian oil and other raw materials. This could likely be interpreted as a result of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA).
Is this news important? Considering India buys roughly 20% of Iran’s oil, the answer would be yes. It also signals that one of Iran’s few remaining channels of international finance, India, is closing its doors to Iranian trade.
The RBI’s recent decision highlights another key issue of the sanctions – that the sanctions are biting Iran indirectly. As this article in the Times of India indicates, although the UN (or even U.S. sanctions such as those provided in the CISADA) do not ban the purchase of Iranian oil by non-US companies, there is pressure on purchasers of Iranian oil as well. So, even if the sale of certain goods to Iran is not per se prohibited, the inability to finance, ship, or insure these goods makes it very difficult for these goods to reach Iran, and if they do, their prices will invariably go up. Also, the Iranian Financial Regulations, 31 CFR Part 516 poses a substantial threat to third country banks that deal with Iran’s Revolutionary Guards Corps (IRGC) and related entities, imposing potential sanctions on those banks’ activities in the U.S. Also, with the IRGC’s increasing role in Iran’s economy as well as the IRGC’s expanding use of Iranian and non-Iranian front companies, many third country entities are finding it increasingly difficult to distinguish between IRGC and non-IRGC controlled businesses and are just forgoing business with Iran all together.
India is not the first country to effectively pull the brakes on its purchases of Iranian oil. Other countries have done the same – a clear rebuff to those who claim that the Iranian government has unrestrained access to the cash cow that is the country’s oil reserves. With less purchasers of Iranian oil, and the drying up of Iranian oil wells thanks to a lack of access to proper technology and investment, Iran’s role as an oil exporter is increasing day by day.