An Iranian technician checks the oil separator facilities in Azadegan… (Vahid Salemi / Associated…)
WASHINGTON — To continue selling crude oil to India, Iran is accepting payment in rice, medicine, engineering supplies and steel.
To sell to China, its No. 1 customer, Iran is delivering the oil on its own tankers backed by state insurance, not on the commercial tankers used in the past.
Japan remains so eager to buy from Tehran that the government in Tokyo is furnishing the multibillion-dollar marine insurance its ships need to carry Iranian crude.
Despite what the Obama administration calls some of the toughest economic sanctions ever imposed, including a European Union oil embargo and a U.S. ban on financial institutions doing business with Iran's central bank, Tehran is finding legal ways to sell or barter oil to its most important markets in Asia.
The new deals are expensive, time-consuming and risky. But experts say they are easing some of the burden on Tehran's battered economy and buying time for Iran's leaders as Washington and its allies scramble to curb the country's nuclear program.
The legal loopholes in the sanctions system, plus Iran's estimated $100 billion in cash reserves, could allow Tehran to muddle through for several months and perhaps longer before its economy shows major strains or nears collapse, experts say.
Iran's leaders have made no secret of their efforts to work around the sanctions.
President Mahmoud Ahmadinejad said on state television last week that Iran was constantly looking for ways to "bypass" the restrictions.
"We have oil and the world needs it," he said, according to news reports.
U.S. officials say they aren't trying to choke off Iran's oil trade completely -- at least not yet. In an effort to preserve strategic bilateral relationships and minimize disruptions to energy markets and the global economy, the Obama administration has issued special sanctions waivers to China, India, Japan, South Korea and 16 other nations.
The six-month waivers allow the 20 countries to continue buying lesser amounts of oil, with some restrictions, without running afoul of U.S. sanctions. The result: Iran slipped just two places, from second to fourth, in crude oil production in July among OPEC members.
The tightening web of sanctions is intended to persuade Iran's rulers to abandon a nuclear program that the West fears could someday enable Tehran to build a nuclear weapon. So far, the effect is chiefly on Iran's economy.
The European Union embargo on Iranian crude, which took effect in July, and U.S.-led restrictions on its banking system have shrunk Iran's oil exports by about 1 million barrels a day to half of last year's levels. That translates to roughly $100 million daily in lost revenue. Without dollars or euros to prop up its currency, Iran has seen its rial shed nearly half its value in the last year.
The new deals could help slow Tehran's economic slide.
"That's the idea if they can pull it off: to bring in enough of those foreign currencies or have transactions on the borders of the international financial systems," said Djavad Salehi-Isfahani, an economist and Iran expert at Virginia Tech. "I don't know how well it's working, but that's the direction in which they are moving."
With EU companies that sell marine insurance to most of the world's tankers banned from covering any shipment by an Iranian-owned company, Asian governments and Iran have stepped in to provide the insurance necessary to deliver the oil.
Last month, the first tanker covered by an Indian government insurance policy carried up to 94,000 tons of Iranian crude to India, or about half Iran's current average daily exports.
India also has allowed a handful of Iranian financial institutions to open accounts in the South Asian nation in the local currency, the rupee, to get around the U.S. banking curbs. Under a trade mechanism established with Tehran this spring, India can pay for up to 45% of its oil purchases in rupees through Iranian-held accounts at India's state-owned UCO Bank.
India is also selling basic goods that could help Iran stave off the effect of sanctions.
Nigel Kushner, a British lawyer who specializes in sanctions, cited Indian traders as saying they're stepping up exports of rice, pharmaceutical goods, medical equipment, cooking oil, engineering supplies and steel. Iran pays for them all in rupees.
The accounts often are established with proceeds from oil sales to India, and the goods Iran purchases are deducted from the balance, according to experts familiar with the trade.
"Iran is getting what it wants," said Kushner, chief executive of Whale Rock Legal, a law firm in London. "It takes a little bit longer and costs a little bit more, but in general they are getting what they want."
None of these mechanisms violate U.S., EU or United Nations sanctions, according to experts. And in some cases, the buyers are using Iran's vulnerability to strike favorable deals.
Independent experts believe China has negotiated discount rates for Iranian oil, although Tehran denies cutting prices.