India is considering using gold to temporarily settle oil trades with Iran, reported the Economic Times, citing an unidentified government official.
Another possibility, reported by Times of India, is for India and Iran to temporarily settle trades in a designated third country.
Currently, Indian oil companies cannot settle oil payments from Iran, its second largest supplier, because the Reserve Bank of India has demanded that trades with Iran be settled outside the Iran-based Asian Clearing Union (ACU).
Previously, most trades between India and Iran was conducted through the ACU.
This move is possibly due to pressures from the U.S. to further sanction Iran economically because of Teheran's alleged pursuit of a nuclear weapons program.
According to Reuters, oil sales will still run between the two countries until the end of January. After that, the trade of 400,000 barrels per day may stop unless India finds an alternative to ACU.
This ongoing dispute has generated some interest because it highlights the continual cat-and-mouse-game being played by the U.S., the 'rogue nations' it is trying to pressure economically, and the third-party countries trying to walk a fine line between maintaining their crucial economic relationships with these 'rogue nations' and not angering the U.S.
Furthermore, the gold comment garnered some attention because the denomination of the crude oil trade in the U.S. dollar is an important reason that the dollar has maintained its global reserve currency status.
So if India were to settle crude oil trade in gold (even temporarily), it may set a precedence that will further erode the international status of the U.S. dollar and bolster the reputation of gold, whose value has recently soared (in small part due to buying from India's central bank) because it is seen as an alternative currency to paper money.