Aftab Ahmad and Nidhi Gandhi

NEW DELHI, (Reuters) – India will pay rupees to Iran for its first long-term urea deal. This is to protect itself against global supply disruptions and higher prices. The matter has been complicated by Russia’s invasion in Ukraine.

Under pressure from the U.S., India stopped importing urea from Iran in 2019. Government data shows that Asia’s third largest economy turned to Russia, Ukraine, and China to supply its crop nutrition needs.

According to one source, some Indian states were faced with shortages last year due to China’s “abrupte” export bans. This was despite high global prices.

Source said that “Now the Russia-Ukraine question has added to uncertainty over supplies and prices… our goal is to secure supplies to reasonable rates.”

India is the world’s largest importer of urea, soil nutrients and fertilizers. It employs approximately 60% of India’s population and contributes 15% to its $2.7 trillion GDP.

Federal government sets a maximum retail price for urea, and also includes import subsidies to cover additional costs. The federal government also provides subsidies for local urea producers to sell the product at low state prices.

India’s fertiliser subsidy bill hit a record 1.5 billion rupees during 2020/21.

India was third in importing urea from Iran during 2018/19. It supplied approximately 17% of the nearly 7.5 Million tonnes of imports to New Delhi.

India has been urged to speed up a deal on Iran following indications that talks between Iran and America could result in an agreement to lift the sanctions.

According to another source, meetings had been held with various stakeholders. The plan was to pay rupees and involve local banks in order to annually import 1.5 million tonnes of Iranian urea.

According to sources, pricing has not been decided.

Reuters requested comment from India’s fertilizer and finance ministers but were not able to get a response.

India developed a scheme that was similar to barter to enable it to send oil payments in rupees to Iran through a small bank during a 2012 round of sanctions. Iran used these funds to buy goods from India.

This helped India reduce its trade deficit against Iran. India has ceased oil purchases from Iran since 2019. New Delhi’s surplus trade deficit with Tehran in 2019/2020 resulted in depletion of funds at its local bank.