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Credit: Reuters/Caren Firouz By Ratnajyoti Dutta and Mayank Bhardwaj NEW DELHI | Tue Feb 7, 2012 2:17am EST NEW DELHI (Reuters) - Iranian buyers have defaulted on payment for about 200,000 tonnes of rice from their top supplier India, exporters and rice millers said on Tuesday, as trade between the two countries comes under mounting pressure from a new wave of Western sanctions against Tehran. While a sharply weakening rial has made forward purchases costlier, financial sanctions are making it difficult for Iranian traders to continue using an unofficial route involving middlemen based in Dubai to keep paying Indian suppliers. The defaults, totaling about $144 million, were for shipments under term deals in October and November free-on-board Indian ports, Indian traders said. Most Indian rice exporters allow 90 days credit. India is Iran's top rice supplier, accounting for some 70 percent of its annual requirement of 1-1.2 million tonnes of the grain, mainly the aromatic variety called Basmati. "It is a serious issue and we do not rule out further payment defaults by Iran," said Vijay Setia, president of the All India Rice Exporters' Association. "We have requested the government to step in." Setia said India should not send any more rice to Iran on credit, adding suppliers such as those in Thailand, Vietnam and Pakistan had already stopped doing so. Traders and officials in Iran could not be immediately reached to comment. The United States slapped fresh sanctions on Tehran from the start of this year, targeting financial institutions that deal with the central bank, hoping to stem oil revenues and persuade Iran to abandon a suspected nuclear weapons program. The European Union followed with a ban on Iranian oil this week that is expected to take full effect within six months. The rice defaults could be the latest sign that those sanctions are biting, hampering staple food supplies to Tehran as Iranian importers find it increasingly difficult to settle payments. Grain ships are docked outside Iranian ports, traders are not booking fresh cargoes and exports of staples to Iran such as maize are falling due to problems collecting payment from buyers. The rice default is the latest snag in India-Iran trade, which is heavily skewed towards Tehran. India is Iran's second-largest buyer of crude and it has struggled to settle payments worth some $11 billion annually after New Delhi scrapped a long-standing mechanism in 2010 under pressure from Washington. While New Delhi has switched to a payment conduit for its Iranian oil using a Turkish bank, Indian rice exporters have been using a loose, unofficial route involving a network of middlemen based in Dubai. The middlemen receive payments from Iranian importers in rial and pay Indian exporters in U.S. dollars. The consignments are sent directly from India to Iran. But Indian traders said the defaults started after the rial plunged over the past month, making previous purchases costlier for Iranian importers. The cost of transactions also went up for the Dubai middlemen as they use U.S. dollars to pay Indian exporters. On January 26, Iran announced an 8 percent devaluation of the rial and said it would enforce a single exchange rate, aiming to stamp out a black market where the dollar's value has soared due to fears over new sanctions imposed by the West. Indian traders said about 20 Iranian companies have failed to clear their dues during the past month. "It threatens to jeopardize the trade with them, hurting both India and Iran," Anil K. Mittal, chairman of KRBL Ltd, a leading Indian rice miller and exporter, told Reuters. "Due to sanctions on Iran, currently banks are not involved in payments to Indian rice suppliers. The payments are direct and at times on credit, making Indian exporters vulnerable to defaults. Indian traders must avoid supplying on credit." BOOSTING EXPORTS TO IRAN The defaults could also put a question mark on the willingness of any Indian traders to take part in plans by India to step up exports in a range of goods, including farm products such as wheat and rice, to settle part of its oil dues to Iran. New Delhi will send a delegation to Iran this month to explore boosting exports to smooth use of the restricted rupee currency, which the two sides have agreed to use to settle 45 percent of India's $11 billion a year oil bill. But this would give Iran large amounts of a currency which is difficult to use for international trade. An Indian ministerial panel on food exports meets on Tuesday to review rice and sugar shipments. The issue of exports to Iran is not on the agenda, government officials said, seeking to knock down reports that the panel could discuss the possibility of boosting rice and wheat exports to Tehran. India, is expected to produce 102.75 million tonnes of rice in the crop year to June 2012, a farm ministry forecast said last month. Basmati makes up around 5 percent of India's total rice production. India's January 1 rice inventory at government warehouses was 29.8 million tonnes against a target of 11.8 million tonnes. ($1 = 48.93 rupees) (Writing by Krittivas Mukherjee; Editing by John Chalmers and Neil Fullick) World Related Quotes and News Company Price Related News Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. 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