JOIN US"This is a significant action" by India, the Treasury Department's point man on Iran sanctions, Stuart Levey, was quoted as saying by The Wall Street Journal.
Levey's statement comes days after the Reserve Bank of India instructed its Banks to stop processing current- account transactions using the Asian Clearing Union (ACU).
Headquartered in Tehran, ACU was set up by the UN in 1974 to help facilitate trade in the region.
India is Iran's biggest trading partner in business done through ACU. Besides RBI, it includes central banks of Bangladesh, the Maldives, Burma, Iran, Pakistan, Bhutan, Nepal and Sri Lanka.
On Friday, RBI said Indian firms can't use the ACU mechanism when making payments for the import of oil or gas.
"In view of the difficulties being experienced by importers/exporters in payments to/receipts from Iran... it has been decided that all eligible current account transactions including trade transactions with Iran should be settled in any permitted currency outside the ACU mechanism until further notice," RBI said in another statement Monday.
While that order didn't explicitly mention Iran, the Islamic republic is the only major crude exporter in the ACU, the daily said.
Levey said the latest RBI move will make clear to Indian companies that working through the ACU doesn't necessarily mean an Iranian counterpart has an international seal of approval.
RBI had asked importers to settle their accounts in currencies other than dollar and euro.
The Journal said in January 2009, Iran's government advised local and Indian companies to use the ACU as a way of avoiding international sanctions and the US banking system.
"Iranian exporters to India and Indian exporters to Iran no longer need to fret over the US embargo on dollar transactions," read a January 2009 English-language report on Iran's state-owned Fars News Agency.
"By resorting to the Asian Clearing Union mechanism for import-export transactions, exporters from the two countries can not only realize their receivables but also sidestep the US banking system altogether," it said according to the daily.
India's move could also disrupt its trade with other countries.
In November, India used the ACU to conduct significant transactions with Sri Lanka and Bangladesh, the paper said.