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Business News/ Industry / Energy/  India refuses to pay Russian oil suppliers in yuan
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India refuses to pay Russian oil suppliers in yuan

India is rejecting pressure from Russian oil suppliers to pay for crude imports in the Chinese currency

Prime Minister Narendra Modi's government has rejected the request for transaction in yuan to Russian oil suppliers (AFP)Premium
Prime Minister Narendra Modi's government has rejected the request for transaction in yuan to Russian oil suppliers (AFP)

India has rejected demands of Russian oil companies for payment in yuan amid tension with China. According to a report by the Bloomberg news agency, some Russian oil suppliers are demanding payment in Chinese currency from India. However, Prime Minister Narendra Modi's government has rejected the request for transaction in yuan.

Indian Oil Corp., the biggest state refiner, had made a yuan payment for Russian crude in the past, although the Modi government has since clamped down on that. Since 70% of India's refiners are government-owned, therefore, they will also stop a payment in Yuan in an attempt to follow orders on payment instructions from the Ministry of Finance.

Indian refiners mostly pay for Russian oil imports in dirhams (UAE currency), US dollars, and a small amount of rupees, if oil prices are above the $60 a barrel cap imposed by the US and its allies on Russian oil.

While the yuan is sometimes used in smaller transactions, Russian oil suppliers are requesting that the Chinese currency be the main unit of transaction for oil trade.

Also read: Russia back as top oil supplier in August

As per the Bloomberg agency report, Russia's demand for yuan has grown sharply in the past year as the economy becomes more reliant on China for imports.

Russian businesses have been settling more of their trade in yuan, with the Chinese currency this year replacing the dollar as the most traded currency in Russia.

An executive from an Indian oil refiner told Bloomberg that payment for about four to five cargoes had recently been delayed because the parties involved failed to agree on the currency of exchange.

India’s resistance to transacting in yuan underscores its difficulty in balancing relations between Russia, an important economic ally, and China, a geopolitical rival. Russia is now the top crude supplier to India, making up almost half of the South Asian nation’s purchases.

Simultaneously, India's relations with China have remained strained due to the border disputes between the two nations. Popularising the yuan at the expense of the rupee also hurts India’s own efforts to internationalize its currency.

Russia--India's top oil supplier

Russia was India's largest oil supplier with imports worth $4.15 billion.

India’s total oil import bill during the month rose 28.27% to $11.49 billion from $8.96 billion in July.

Imports from Iraq and Saudi Arabia were valued at $2.33 billion and $2.07 billion in August this year.

Russia has emerged the largest supplier of oil to India in the past 20 months with offers of discounted oil amid sanctions from the West.

In FY22, Russian oil accounted for only 2% of India’s total oil imports; in FY23, it made up around one-fourth of the 235.52 million tonnes of crude oil imported by India.

Why Russia does not want to trade in Rupee?

Russia has accumulated billions of dollars worth of rupee assets given its wide trade surplus with India, but it’s struggling to use the funds. The rupee isn’t a fully convertible currency internationally, making it difficult to use in global trade.

In May this year, Russian Foreign Minister Sergei Lavrov said that the build-up of rupees is a “problem" and discussions were taking place on how the funds can be transferred into another currency.

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Published: 20 Oct 2023, 09:59 AM IST
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