Germany to End Facilities for Iran Oil Payments

Germany’s Spiegel reports today that German Chancellor Angela Merkel is moving to end the Bundesbank’s involvement in India’s oil payments to Iran. As we had reported on Friday, the German central bank had agreed to act as the conduit for the transfer of oil payments from the Reserve Bank of India (RBI) to Hamburg-based Europäisch-Iranische Handelsbank or EIH bank, which is controlled by Iran. If the Bundesbank in fact ends its involvement in the deal, India’s import of Iranian oil valued at over $12 billion annually will be in jeopardy.

Last December, RBI stopped using the Asian Clearing Union to settle India’s payments to Iran for the Union's non-adherence to US and European sanctions against Iran. For the past three months, India was importing Iran’s crude oil on credit. On 3 March, RBI finally resumed its payments through the Bundesbank to Iran's account at EIH bank.

On Tuesday, the German financial newspaper Handelsblat had first reported the possibility that Chancellor Angela Merkel would stop the Bundesbank’s involvement in the deals. Sources cited by Handelsblatt have now told Speigel that the Bundesbank would process payments for oil deliveries that have already taken place, but would not permit further deals in the future.

The end of Budesbank’s involvement would be a serious setback for the Iranian government and the Iranian oil industry, and a major victory for US attempt in strengthening financial sanctions against Iran.

Controversy Over India Oil Payments to Iran Continues

EIH Bank Headquarters in Hamburg, Germany

The controversy continues over how India would pay Iran for the oil it imports, estimated to be more than $12 billion a year. Last December, the Reserve Bank of India (RBI) stopped using the Asian Clearing Union to settle India’s payments to Iran for the Union's non-adherence to US and European sanctions against the country.

In February, RBI informed German authorities that it intends to conduct Iranian oil financial transactions via the Bundesbank, the German central bank. On 3 March, RBI made its first payment of $2 billion to Hamburg-based bank Europäisch-Iranische Handelsbank or EIH (“European-Iranian Trade Bank”) via the Bundesbank and has since continued settling its overdue payments to Iran using the same channel.

The US considers EIH as one of Iran’s few remaining access points to the European financial system, and has raised concerns that EIH has facilitated a tremendous volume of transactions for Iranian banks previously blacklisted for involvement in the country’s nuclear and missile program. The US Treasury has been pressing the German authorities to add EIH to its sanctions list.

“Treasury is concerned about recent reports that the German government authorized the use of EIH as a conduit for India’s oil payments to Iran. Treasury will continue to engage with both German and Indian authorities about this situation, and will continue to work with all our allies to isolate EIH,” said a US Treasury official on Thursday [The New York Times, 31 March].

Germany has so far resisted the inclusion of the EIH on the sanctions list, citing lack of clear evidence implicating EIH’s involvement in transactions banned by the UN and EU sanctions.

The critics of the German government point to the fact that last year the German volume of trade with Iran amounted to over $5 billion, and German businesses which are still active in Iran use the EIH to process their financial transactions, hence the German reluctance to mover against EIH.

The critics of the US Treasury point out that the closure of EIH by the German authorities would in effect impose an embargo on Iran’s export of crude oil to India, even though the current UN, US and EU sanctions do not cover the purchase of crude oil from Iran.

Photo: Reuters