Under western sanctions, India has been one of the few countries willing to do business with Tehran.
India's largest-ever steel export deal, struck with Iran in 2014 to allow it to buy the metal without violating Western sanctions that are now set to end, has become mired in a dispute that has seen no payments made or shipments delivered since last fall.
The impasse underlines how Tehran is taking a more assertive posture in its dealings with trading partners as options open up for business and it looks to strike better deals.
Iranian Gas Engineering & Development Company (IGEDC) has written to Indian state-trader STC India Ltd complaining that steel shipments have been irregular and far below terms set out in the $2.5 billion contract, according to a letter seen by Reuters.
It also said in the letter, dated late last month, that it would like to deal directly with Essar Steel India Ltd, which was supplying the steel to STC for export, if the state trader did not restart regular shipments soon.
"We strongly urge STC to either be more flexible to enable regular and faster shipments or allow the contract to be dealt directly between IGEDC and the manufacturer," it wrote.
The complex arrangement was put in place to allow steel exports without violating sanctions that prevented private Indian companies from dealing directly with Iran.
That is set to change, with Western sanctions expected to be lifted under a historic nuclear deal struck in July between Tehran, the United States, Britain, France, Germany, Russia and China, giving Iran far more flexibility to pursue deals.
IGEDC's managing director's office did not return calls seeking comment. STC did not have any immediate comment. "The contract between Essar and STC is valid and is being performed," Essar said in an email reply.
Under sanctions, India has been one of the few countries willing to do business with Tehran."When this steel export deal was done, Iran had virtually no choice than to accept it, as sanctions isolated it from the world financial system," said Robin Mills, chief executive of Dubai-based Qamar Energy. Mr Mills said the end of sanctions would open a wider circle of trade partners for Iran, such as those from Europe and China. "So Iran would like to diversify and buy steel from other players instead of having a huge contract with India," he said.
Iran expects the U.N. nuclear watchdog to confirm on Friday it has curtailed its nuclear programme, paving the way for the unfreezing of billions of dollars of assets and an end to bans that have crippled its oil exports.
The three-year steel contract was struck in June 2014, after the Indian government, worried about its trade balance with Iran and looking to boost exports, directed trading firms STC and MMTC Ltd to help facilitate business for Indian companies.
The steel deal ran into trouble in September, when Tehran failed to clear dues of about 4.5 billion rupees GIVE IN CRRES ($66.7 million) for steel exported to it by STC, the source familiar with the matter said.
The source said STC supplied the steel to Iran based on availability and demand from Tehran, which was why the shipments were far below the expected levels.
© Thomson Reuters 2016