(The Hindu Business Line, Vishwanath Kulkarni, Richa Mishra, 30.Sep.2018) — India is considering setting up a rupee-payment mechanism for trade with Venezuela, besides exporting rice and drugs to the South American nation, all in return for crude oil.
The Ministries of Commerce, Finance and Petroleum are looking into the proposal.
“Venezuela is among the top 10 crude oil suppliers to India. Since the size of the business would run into several millions, it needs to have a proper trade balance. So, there could be the possibility of using the rupee-payment system as a trade off: Venezuela wants to sell oil, India has to look at what it can sell besides rice and pharmaceuticals, to make the mechanism more attractive,” an official said, adding that the arrangement “could work like a barter system”.
The rupee-payment mechanism is not a new concept, but there is a general agreement that the strategy for Venezuela cannot be similar to that for sanctions-hit Iran.
This mechanism is also being considered to benefit Indian exporters, particularly pharmaceutical products and non-basmati rice. “Rice is well-consumed in Venezuela and we see a huge potential, provided a proper payment mechanism is established,” said BV Krishna Rao, President of the Rice Exporters Association.
So far, the efforts of exporters to tap the Venezuelan market through the Dubai route have not been successful due to payment issues. Rao estimates that India could export up to half-a-million tonnes to Venezuela on a regular basis, if a rupee-based payment mechanism is set up.
Crude oil imports are of prime concern for India in its relations with both Venezuela and Iran. Sri Paravaikkarasu, Director – Asia, Oil at FGE, a global oil and gas consultancy, said: “In the previous round of sanctions (on Iran), India did use rupee payment and barter arrangements for its Iranian crude imports. India is no doubt considering these options to side-step the soon-to-be-imposed US sanctions against Iran. But we must remember that this US President is taking a hardline against Iran, compared to his predecessor.”
Private refiners have already decided not to import oil from Iran. “Even if the national oil companies consider other payment options with Iran and to some extent with Venezuela, they would only achieve limited success. The US intends to track tanker movements out of Iran and monitor the crude/condensate supply-chain down to recipient countries. So, energy firms with any sort of exposure to the US financial system will come under sanctions if they are caught circumventing the sanctions in any way,” she said, adding that Indian companies may well avoid creating the “high-risk scenario”.
As estimate by Vanda Insights, based on shipping information, said that India’s oil imports from Iran stood at 4.81 lakh barrels a day in September, about 4.17 lakh barrels August, and about 6.28 lakh barrels in July. In September 2017, about 3.52 lakh barrels a day came in.