Trump threatens Iran’s partners: How do secondary sanctions work?

India, the world's leading rice exporter, remains confident that its rice trade with Iran can persevere despite the looming threat of stricter US sanctions. The commodity makes up roughly two-thirds of India's $1.25 billion worth of exports to Iran during the fiscal year concluding March, according to official figures. Iran, meanwhile, represents about 7% of India's $11.5 billion global rice exports.

Iranian officials have expressed the country's continued demand for rice purchases citing "food security" as the primary rationale, as reported by Bloomberg. Ajay Bhalothia, general secretary of the All India Rice Exporters Association, commented on the situation stating his optimism that the trade would remain uninterrupted despite the recent imposition of sanctions by the US administration on over 60 entities and the threat of subsequent economic penalties.

India's rice exports to Iran have shown a steady increase, with more than 1 million tonnes being imported in the previous financial year, a 17% rise from the prior year, as revealed by government data. Indian exporters have attributed the resilience of the trade to the intrinsic importance of rice as a staple food in Iranian cuisine, and the scarcity of alternative suppliers.

In response to the looming sanctions, Indian exporters have been employing alternative payment channels such as financial institutions in the UAE, Germany, China, and most recently, Turkey, to settle their transactions with Iranian counterparts. These channels have maintained their functionality so far without any disruptions, according to Bhalothia.

The innovative payment route has been particularly crucial as exporters had previously expressed concerns over banking and shipping restrictions stemming from the Iranian sanctions. India and Iran were once among each other's largest rice trading partners, with Iran being India's second-largest basmati market by volume in 2018-2019, behind Saudi Arabia.

Indian exporters have explored alternate transaction channels post the UAE's suspension of trade and financial transactions with Iran, with Turkey being eyed as a potential alternative. Apart from rice, India's other major exports to Iran include pharmaceuticals, tea, bananas, cereals, bovine meat, and various chemicals. These goods are deemed essential and are unlikely to face disruptions due to their humanitarian nature and limited supply sources.

However, India has not been importing oil from Iran since 2019, barring a brief window that emerged this year following US waivers. Indian officials, including SC Ralhan, president of the Federation of Indian Export Organisations, have urged the government to step in on humanitarian grounds to assist exporters amid potential disruptions from prolonged trade restrictions.

The overall India-Iran trade relationship has significantly declined since its peak in 2018-2019, with bilateral trade falling by more than 90% to $17 billion. Currently, Indian exports to Iran primarily consist of goods that are covered by humanitarian exemptions.