India Pursues Shift to Rupee-Based Payments for Iranian Oil Imports

India Reroutes Oil Payments to Iran Through Third Countries

India is likely settling payments for Iranian crude oil in rupees, while also routing some transactions through third countries, according to two government officials familiar with the matter.

This development comes as New Delhi resumes oil imports from Tehran under a 30-day US waiver on sanctions issued around March 20, which allows limited trade in pre-shipped cargoes and is due to expire around April 19.

The payment mechanism relies on a mix of local-currency settlement, trade adjustments, and offshore routing, depending on the transaction. Transactions with Iran are being settled in rupees, and some payments are being made via a third country.

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Under this arrangement, authorised foreign entities can open accounts in India, enabling domestic settlement of payments. The funds can then be used by the Iranian side to procure Indian goods and services, ranging from basmati rice to tea.

Iranian banks remain largely excluded from the SWIFT global messaging system, while Indian banks with significant international exposure are steering clear of direct involvement to minimise risk. As a result, banks with far less exposure are being used for this purpose, and a third country where the Indian bank has a branch is also being utilised.

Comparison of Previous and Current Payment Mechanisms

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During earlier phases of sanctions, India had used a rupee-rial payment mechanism routed through UCO Bank, which had limited exposure to the US financial system. That arrangement became defunct after imports stopped in 2019, and it is not immediately clear whether the same bank or a similar designated lender is being used for the current transactions.

India halted imports of Iranian crude in May 2019 after the United States withdrew sanctions waivers that had allowed limited purchases. Before that, Iran was among India's top oil suppliers. India's purchases of Iranian crude so far appear limited and are being executed through spot deals, with no confirmed deliveries reported yet and overall contracted volumes across refiners not disclosed.

Ship-tracking data had indicated an initial cargo of about 600,000 barrels, potentially the first since 2019, was originally bound for India. However, the buyer remains unclear, and the vessel's final destination is uncertain after subsequent reports indicated it may have altered course mid-voyage.