British statesman Lord Palmeston's original statement read: "Therefore I say that it is a narrow policy to suppose that this country or that is to be marked out as the eternal ally or the perpetual enemy of England. We have not eternal allies, and we have no perpetual enemies. Our interests are perpetual, and those interests it is our duty to follow". That has been truncated to: "Nations have no permanent friends or enemies, only permanent self interests". Either way, the outcome is the same.
In that context, India has turned a deaf ear to the US and the EU when it comes to non-UN mandated sanctions on Iran. While India has sought to abide with the UN-mandated sanctions, it has of late been active in Iran. The root cause has been India's trade imbalance and dependance on foreign oil. In 2011, India's trade deficit hit $19 billion, an unsustainable amount. Of this, oil imports were the largest category.
India imports 15% of its oil from Iran, something that cannot be changed easily since several refineries in India are tailor-made for Iranian oil. The consequence of this large oil bill was increased pressure on the Indian rupee, making it the worst performing currency in Asia last year. India is desperate to find a solution to its oil import woes. Probably just as desperate as Iran is to build nukes.
As the screws were turned on for Iran, and it started running out of basic staples, India spotted an opportunity. A deal was reached between the two countries, wherein India would pay for 45% for oil in Indian rupees, not US dollars. The remaining 55% would be bartered in exchange for Indian goods - tea, rice, manufactured goods, etc. This is a significant win for India on multiple fronts:
1. It boosts Indian exports, decreasing the trade deficit.
2. It decreases the use of US dollars, increasing India's foreign exchange reserves.
3. It boosts the value of the Indian rupee, making it a trading currency for the first time outside the Indian sub-continent.
If the rupee is to rise, one can trade that information in several ways. If the investor is of Indian origin, s/he can put money in NRE accounts in Indian banks that offer a substantial (7%-9%) interest rate and allow convertibility into dollars. One could gain not only from the interest rate, but also the rising value of the rupee. For non-Indians, one way to trade this is to consider rupee ETF/ETNs in the US; two of them worth mentioning are Market Vectors Rupee (INR) and Wisdom Tree Dreyfus Indian Rupee (ICN).
A note of caution: several factors should be considered before investing in the currency of a country, one of which is government stability, about which I have written recently. Please do your due diligence.
Additional disclosure: I have investments in India in NRO and NRE accounts.