Washington: By forcing concessions from Tehran, Iran’s two major oil buyer-India and China- seems to be seeking to reap benefit of the international sanctions imposed on the Islamic republic over nuclear activities a latest Congressional report has claimed.  

The United States imposed international sanctions on Iran following the latter’s nuclear activities.

"India has used the payments difficulties to force concessions from Iran, including an Iranian acceptance of payment for about 45 percent of the oil sales in rupees, India's local currency but which is not convertible," the Congressional Research Service (CRS) said.

"The remainder might be settled through barter trade or Indian investment in Iran, and some might be settled in gold. The Iranian concessions have made it attractive for India to refuse US efforts to persuade it to cut its oil purchases from the baseline level of about 350,000 barrels per day," it said.

As the name suggests, CRS is the independent bi-partisan research wing of the US Congress, comprising experts of various fields. CRS prepares reports on different issues for the information of US lawmakers.

"Like India, China appears to be seeking to take advantage of the sanctions for its own purposes, and in so signaling to Iran that it disapproves of its behaviour," said the nearly 80-page report titled Iran Sanctions.

"China has said it will not significantly reduce its oil purchases from their 2011 average level of about 550,000 barrels per day, despite the threat of the US sanctions. Oil industry observers say that China cut its oil buys from Iran by about 50 percent for January 2012, apparently in an attempt to force Iran to discount the oil it sells to China," it said.

"The reduction could have been caused by a disagreement between Iran and Unipec, one of China's top importers — a disagreement reportedly resolved in mid - February 2012 and which is likely to cause China's imports from Iran to return to baseline levels. Some reports in late March 2012 suggested another Chinese refiner, Sinopec, might cut its purchases from Iran," it said.

CRS said South Korea is known to be actively negotiating with the United States in order to achieve an exemption.

"The three other large Iranian oil buyers — China, India, and Turkey — have not pledged to cut oil purchases from Iran. In addition, trade that is conducted in cash or barter arrangements would not risk sanctions under the provision," it said.

"With the payments mechanisms largely closed or closing, India's position on whether it will cooperate with a broader oil embargo on Iran remains in doubt as of late March 2012," the report said, adding that India's record of cooperation with multilateral sanctions against Iran is mixed.

"India has generally been considered friendly toward Iran, and many experts were surprised when India's central bank, in late December 2010, announced that it would no longer use a regional body, the Asian Clearing Union, to handle transactions with Iran," the reports said.

"The Asian Clearing Union, based in Tehran, was set up in the 1970s by the United Nations to ease commerce among Asian nations. There have been allegations in recent years that Iran might be using the Clearing Union to handle transactions so as to avoid limitations imposed by European and other banks, and India's move followed US President Barack Obama's visit there in November 2010," it said.

"With India's purchases of about 350,000 barrels per day of Iranian oil (about USD 11 billion worth of oil in 2011) made difficult by the move, in February 2011, India and Iran agreed to use an Iranian bank, Europaisch-Iranische Handelsbank (EIH) to clear the payments," it said.

On May 23, 2011, the EU named EIH and about 100 other entities as Iran proliferation-related activities, rendering India and Iran again in search of an alternative payments mechanism.

With approximately USD 6.3 billion in oil payments due Iran building up in an escrow account, in July 2011 Tehran threatened to reduce or cut off entirely oil shipments to India.

In late July 2011, the two identified Turkey's Halkbank as an acceptable processor and on September 4, 2011, Iran’s Central Bank Governor said India had fully settled its debt.

The US law sanctioning dealings with Iran's Central Bank led Halkbank in January 2012 to express the view that it might not be able to continue handling payments to Iran, the report said. According to CRS, Iran's oil sales for March have fallen dramatically from prior levels.

"Once the EU embargo is fully implemented, Iran's oil sales might fall by as much as 40 percent (1 million barrels per day reduction out of 2.5 million barrels per day of sales). Iran is widely assessed as unable to economically sustain that level of lost oil sales," it said.

The signs of economic pressure on Iran are multiplying, it said, adding that the value of Iran's rial has dropped precipitously since December 2011.

Iranian leaders have admitted that Iran is virtually cut off from the international banking system and is increasingly trading through barter arrangements rather than hard currency exchange, it said.

"The pullout from Iran by major international firms has slowed Iran's efforts to modernize its energy sector and other sectors, rendering Iran unable to increase its oil production above 4.1 million barrels per day. Still, Iran has small amounts of natural gas exports; it had none at all before Iran opened its fields to foreign investment in 1996. Still, relatively high world oil prices have reduced some of the effects of the sanctions," CRS added.