India is the world’s second-largest buyer of Iranian crude after China and recently, and it reached an agreement with the Iran to make future oil payments in India’s local currency INR to avoid sanctions from the United States, which has re-imposed all the removed sanctions beginning November, which were removed after 2015 nuclear agreement was reached between Tehran and six world powers; China, Russia, France, Germany, United Kingdom, and the United States.
As per the agreement, part of those oil payments would be used to export items to Iran, while the rest of the money would be paid using India’s state-owned UCO bank, which in the past has handled these kinds of transactions between the two countries. The UCO bank is expected to announce the details of the payment system by the end of the year.
The U.S. has imposed sanctions on Iran beginning November but granted 180-day sanction waivers to several countries including India and China, which expires in the first half of next year and it is unlikely that the United States would extend that. More importantly, the sanctions waiver only allows Indian refiners to import 300,000 barrels per day, which is not sufficiently compensate for the domestic need as Iran usually offers India attractive price and discounts.