India is the first buyer of Iranian oil to agree to pay for its purchases in gold instead of the US dollar, DEBKAfile's intelligence and Iranian sources report exclusively. Those sources expect China to follow suit. India and China take about one million barrels per day, or 40 percent of Iran's total exports of 2.5 million bpd. Both are superpowers in terms of gold assets.
By trading in gold, New Delhi and Beijing enable Tehran to bypass the upcoming freeze on its central bank's assets and the oil embargo which the European Union's foreign ministers agreed to impose Monday, Jan. 23. The EU currently buys around 20 percent of Iran's oil exports.
The vast sums involved in these transactions are expected, furthermore, to boost the price of gold and depress the value of the dollar on world markets.
Iran's second largest customer after China, India purchases around $12 billion a year's worth of Iranian crude, or about 12 percent of its consumption. Delhi is to execute its transactions, according to our sources, through two state-owned banks: the Calcutta-based UCO Bank, whose board of directors is made up of Indian government and Reserve Bank of India representatives; and Halk Bankasi (Peoples Bank), Turkey's seventh largest bank which is owned by the government.
An Indian delegation visited Tehran last week to discuss payment options in view of the new sanctions. The two sides were reported to have agreed that payment for the oil purchased would be partly in yen and partly in rupees. The switch to gold was kept dark.
India thus joins China in opting out of the US-led European sanctions against Iran's international oil and financial business. Turkey announced publicly last week that it would not adhere to any sanctions against Iran's nuclear program unless they were imposed by the United Nations Security Council.
The EU decision of Monday banned the signing of new oil contracts with Iran at once, while phasing out existing transactions by July 1, 2012, when the European embargo, like the measure enforced by the United States, becomes total. The European foreign ministers also approved a freeze on the assets of the Central Bank of Iran which handles all the country's oil transactions.
However, the damage those sanctions cause the Iranian economy will be substantially cushioned by the oil deals to be channeled through Turkish and Indian state banks. China for its part has declared its opposition to sanctions against Iran.
DEBKAfile's intelligence sources disclose that Tehran has set up alternative financial mechanisms with China and Russia for getting paid for its oil in currencies other than US dollars. Both Beijing and Moscow are keeping the workings of those mechanisms top secret.
The US$ appears to have lost its dominant position in this case, as gold is now preferred as the vehicle for doing trade.
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