India will be unable to count on Iran, one of its most important sugar customers, for its upcoming export drive as an increase in Iranian production and Tehran’s shortage of rupees limit buying. New Dehli agreed last week to subsidise up to 6 million tonnes of sugar exports this season to try to cut surplus stocks and support local prices. In the 2019/20 season, ended Sept. 30, Iran imported a record 1.14 million tonnes of sugar from India, accounting for some 20% of the country’s sugar exports, Indian customs data shows. This year, the amount is expected to be significantly lower, which will weigh on overall prices and deny India a customer that paid a 4% premium over world prices last season, market sources say. “Iran’s import requirement (from India) would be much smaller (this season). I think around 300,000-500,000 tonnes,” a Mumbai-based dealer with a global trading firm said. He declined to be named because he is not authorised to speak to the press. An official in Iran told the country’s IRNA news agency last month that raw sugar imports from all countries in the Iranian year ending March 21, 2021, would total about 500,000 tonnes. India is providing export subsidies for the third consecutive season to help shift excess stocks. The subsidy is necessary to cover the difference between high sugar prices in the local market versus the world market and, in the 2019/20 season, it helped India to export a record 5.7 million tonnes of sugar, with Iran its biggest buyer. The very size of Iran’s purchases have left the country with large stockpiles. Data from the International Sugar Organization (ISO) shows Iran’s sugar stocks were 723,000 tonnes at the beginning of the 2020/21 season this October, versus 102,000 tonnes a year earlier. The ISO also expects Iran’s production will rise to 1.85 million tonnes in 2020/21 from 1.55 million in the prior season. LACK OF CASH A shortage of rupees is also an issue for Iran. Under US sanctions, Tehran is unable to use US dollars to transact oil sales. Iran previously had a deal to sell its oil to India in exchange for rupees, which it used to import critical goods, including sugar, but New Delhi stopped buying Tehran’s oil in May 2019 after its US sanctions waiver expired. Tehran continued using its rupees to import critical goods from India and after 19 months of no oil sales, the Islamic Republic’s rupee reserves are depleted. In a letter to clients seen by Reuters, India’s UCO Bank, where much of Iran’s rupee reserves are held, said exports to Iran should only be made if the rupees had been allocated and paid in advance. “This is also important keeping in mind the depleting INR (Indian rupee) balance in the account of Iranian Banks,” the letter said. It also said it would have to screen all transactions with Iranian banks from now on to determine whether they could go ahead on humanitarian grounds. UCO Bank did not respond to Reuters’ request for comment via email. “Rice exporters haven’t received payments for shipments made (to Iran) more than six months back. And there is no clarity when they will get it. The payment delay has made sugar exporters cautious,” said a Mumbai-based dealer with a global trading firm. Rahil Shaikh, managing director of MEIR Commodities India, said Iran needs to be judicious in what it purchases from India this season as its rupee reserves are low. It will, for example, have to focus on pharmaceuticals instead of sugar.