TRADE UPDATE #54

Middle East Impasse

10/01/2020

News this week was full of speculation, rumors, and worries about war. As Iran-US tensions steadily rose following the assassination of top Iranian military figure Qasem Soleimani by the US, global trade and international relations took a big hit. India, in particular, has watched developments in this brewing conflict with particular interest. Iran is the largest buyer of orthodox tea and basmati rice from India, two of the largest export commodities from the country.

As tensions have risen and fallen, trade organizations like FIEO and EEPC have cautioned Indian exporters to expect trouble in the coming months. Concerns about funds running out for the Rupee-Rial trade in 3-4 months have been raised, as have warnings that currency depreciation caused by the conflict may give false hope to exporters. Basmati exporters, while not raising any formal complaints yet, have already decided to stop shipments to Iran based on credit.

Meanwhile, earlier this week, India’s outgoing Ambassador to the US Harsh Vardhan Shringla said that Indo-US trade relations were on the cusp of a deal that would provide improved market access and potentially resolve longstanding trade issues between the two nations. US-Iran tensions are currently simmering low, but the crash of a Ukrainian International Airlines jet near Tehran this week has thrown another spanner into talks of de-escalation. India’s trade with the Middle Eastern nation is thus currently at an impasse, with no clear resolution in sight. One hopes the upcoming Budget will inject some fresh vigor into the ecosystem.


INTERNATIONAL TRADE

Further escalation in US-Iran tension may affect India's exports: FIEO

Further escalation in the tension between the US and Iran will have implications on India’s exports to the Persian Gulf nation, apex exporters body FIEO said on 5th January. Federation of Indian Export Organisations (FIEO) Director General Ajay Sahai said so far exporters have not flagged any concerns related to exports to Iran. “However, if the tensions will continue, it may have an effect on India’s exports to Iran,” he said.


CURRENCY

Iran-US tussle: Rupee-Rial trade to grind to a halt in 3-4 months

Amid the ongoing tussle between Iran and the US, Indian exporters to Iran are worried. Indian exporters may find their payments getting blocked over the next three to four months. They are concerned about the rupee-denominated bilateral trade mechanism put in place by both the countries a year ago, as the rupee kitty with Iran, through which the payments to Indian exporters happen, is fast depleting. Unless an alternate mechanism is put in place, the Rupee-Rial trade might come to a grinding halt in a few months.


COMMODITY

Exporters halt basmati shipments to Iran on credit

Amid rising tensions in US-Iran relations and facing inordinate delays in payments, Indian basmati exporters having exposure to Iran on 8th January decided to export the aromatic variety only on advance payment or on a letter of credit (LC). Currently, India exports basmati under the mode cash against documents (CAD). Under this arrangement, the exporter first sends the consignment to the importer and then instructs the bank to hand over shipping and title documents to the importer when the importer fully pays the accompanying bill of exchange.


CURRENCY

Rupee depreciation because of Middle East events may not help exports, warns EEPC India

Rupee depreciation that may result from events in the Middle East may not help engineering exports, EEPC India has warned. Due to the global slowdown, shipments to the Middle East too were contracting. “The disruptions can cause further setbacks,” sources say. In the wake of the adverse geopolitical situation in the Middle East, the Indian rupee may witness some volatility but the depreciation of the home currency does not always help exporters.


BILATERAL TRADE

India-US deal for better market access on cards: Harsh Vardhan Shringla

India and the United States are nearing the conclusion of a trade package that would provide enhanced market access to both the countries, India’s outgoing Ambassador to the US Harsh Vardhan Shringla said. He was addressing a group of Indian-American entrepreneurs at a farewell lunch on 3rd January. Shringla, however, did not mention any date for the much-anticipated trade deal. “We are close to concluding a trade package that would provide enhanced market access to both countries,” he said.


OTHER NEWS

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