On 3rd July (local time), Reuters reported that Indian refiners have started to pay for some oil imports from Russia in Chinese Yuan. Western sanctions on Russia after its military action on Ukraine have forced its customer countries like India to find an alternative to the dollar to settle payments. Notably, India has emerged as the largest buyer of Russian seaborne oil since the military action in Ukraine started.
The US dollar has long been used as a global oil currency. However, geopolitical reasons have forced India to shift to an alternative currency, especially at the time when Russia has been frozen out of dollar and euro trade by the financial networks. China has also been paying Russia in Yuan for energy imports. Earlier, Saudi Arabia was China’s top crude supplier, but Russia took over the spot in the first quarter of 2023.
Quoting an unnamed source from the Indian government, Reuters noted, “Some refiners are paying in other currencies like yuan if banks are not willing to settle trade in dollars.” In June this year, Indian Oil Corp, the country’s biggest Russian crude oil buyer, became the first state refiner to use Yuan as a payment mode, sources told Reuters. So far, at least three private refiners in India have started shifting Yuan, the report said.
It is unclear how much oil was brought using Yuan as a payment mode. Sources revealed that multiple cargoes were paid for using Chinese currency. Notably, Chinese banks have been promoting Yuan’s use specifically for the Russian oil trade. If India shifts to Yuan further, it will help in boosting China’s efforts to internationalize its currency.
Earlier, some non-dollar payments for Russian oil were made in United Arab Emirates’ dirham as well. Reuters quoted a source saying, “First preference is to pay in dollars, but refiners sometimes pay in other currencies such as dirham and Yuan when sellers ask them.”
India has been trying to convince Russia to accept oil payments in Indian rupees but has not succeeded. Business Insider report suggested Moscow has been unable to convert the large rupee stockpile that it has, which could be the reason for reluctance towards using the rupee as a payment mode for oil trade. In May, Russian Foreign Minister Sergei Lavrov said, “As for rupees, this is a problem because there are billions of rupees accumulated in accounts at Indian banks, and we need to use this money. For this, rupees should be converted into other currencies. This is being discussed.”
#WATCH | As for the rupees, this a problem. We accumulated billion of rupees in Indian bank accounts but to use this money it needs to be transferred to another currency and this is being discussed now..: Russian Foreign Minister Sergey Lavrov on Rupee-Rouble trade talks pic.twitter.com/Dhb8P7iEQC
— ANI (@ANI) May 5, 2023
Notably, India had asked banks and traders in March to avoid Yuan for Russian imports keeping the long-running political scuffle in mind. However, it is unclear what prompted the change in India’s position.
In May this year, Russian oil accounted for 40% of total India’s imports. Last year, it was 16.5%. The increase in Russian imports has directly impacted the purchases from Saudi Arabia and Iraq. Western countries have pushed India to stop buying oil from Russia, but the Indian Government has emphasized taking care of the energy needs of the people of India.
Reports suggest that despite no violation of any norms in paying for Russian oil in dollars, as India does not recognize the sanctions against Russia, the Indian banks have shown reluctance in paying for imports in the US currency. Business Insider report suggested the Indian banks fear potential secondary sanctions if the dollar is used to pay for Russian oil.
Reuters sources said that in May this year, the State Bank of India refused to pay for imports by IOC in dollars. Later, in June, IOC used ICICI Bank to settle the payment in Yuan via the Bank of China. Another state refiner Bharat Petroleum Corp Ltd is also exploring possibilities of using Yuan as a mode of payment for Russian oil as per reports.
Recently, Argentina made some of the repayment of the 2.7 billion USD loan to the IMF in Chinese Yuan.
