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New Delhi, Feb. 7 (Reuters): Iranian buyers have defaulted on payments for about 200,000 tonnes of rice from their top supplier India, exporters and rice millers said today, a sign of the mounting pressure on Tehran from a new wave of western sanctions.
The default prompted the head of the All India Rice Exporters’ Association to call on members to stop rice exports to Iran based on credit, which would be a fresh blow to a country where imports of staple foods are already being hampered by sanctions.
“It is a serious issue and we do not rule out further payment defaults by Iran,” said Vijay Setia, the association’s president.
Indian sources said the Iranian buyers had defaulted on payments worth about $144 million (around Rs 705 crore) for rice shipments under long-term supply deals. The consignments were sent in October and November. Most Indian rice exporters allow 90 days’ credit.
In other supply disruptions, five deliveries of grain to Iran were diverted to new destinations because payments were held up, ship tracking data showed last week. Other cargoes are sitting offshore Iran because of difficulty with payments.
Under a tightening grip of sanctions, the country of 74 million people is finding it increasingly difficult to repatriate the hard currency from its crude oil exports, its major foreign currency earner, that it needs to pay for shipments of food and other imports.
A sharp drop in the value of the rial, the Iranian currency, is adding to the import costs and the financial sanctions make it difficult for traders in the country to channel import payments through unofficial routes involving middlemen based in Dubai.
India accounts for some 70 per cent of Iran’s annual requirement of 1-1.2 million tonnes of the grain, mainly the aromatic variety called basmati.
Traders and officials in Iran could not be immediately reached for comment.
The US slapped fresh sanctions on Tehran from the start of this year, targeting financial institutions that deal with the central bank, hoping to stem oil revenues and persuade Iran to abandon a suspected nuclear weapons programme.
President Barack Obama tightened those sanctions on Sunday, again targeting Iran’s central bank and giving US banks new powers to freeze assets linked to Tehran.
The European Union has agreed to ban Iranian oil imports, a measure expected to take full effect in six months.
Sanctions bite
The rice defaults could be the latest sign that those sanctions are biting as Iranian importers find it increasingly difficult to settle payments.
The rice association’s Setia said the group had approached the Indian government to recover their dues. “As part of efforts to minimise losses, we are asking our colleagues to avoid sending rice on credit,” he said, adding they were not calling for a ban on exports to Iran.
A government source acknowledged the exporters had sought help.
The rice default is the latest snag in India-Iran trade, which is heavily skewed towards Tehran. India is Iran’s second-largest buyer of crude.
Indian rice exporters have been using a loose, unofficial route involving a network of middlemen based in Dubai.
The middlemen receive payments from Iranian importers in rials and pay Indian exporters in dollars.
But Indian traders said the defaults started after the rial plunged over the past month, making previous purchases costlier for Iranian importers. The cost of transactions also went up for the Dubai middlemen as they use dollars to pay Indian exporters.
Iran has agreed to receive 45 per cent of its oil payments from India in rupees, the country’s ambassador Sayed Mehdi Nabizadeh said. The two countries will work on other methods to pay for the remaining portion. Iran can use the rupee to buy items such as machinery, sugar, tea and automobiles from India.
Indian traders said around 20 Iranian companies had failed to clear their dues during the past month. “It threatens to jeopardise the trade with them, hurting both India and Iran,” Anil K. Mittal, the chairman of KRBL Ltd, a leading Indian rice miller and exporter, said.
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