Yves here. The Global Majority effort to move trade away from the dollar is already coming under stress. This is what happens when you have unbalanced bilateral trade: without a settlement currency, the net exporting party winds up with a lot of the net importers’ currency. Here Russia has already been complaining that it has more Indian rupees than it can use.
India is unwilling to acquire yuan to satisfy Russia demands. The amount used for oil transactions is large and India selling rupee to buy yuan would lower the rupee versus the yuan, something India presumably does not want. And with China having capital controls, there might even be liquidity issues.
Mind you, this is not a new problem. From Reuters in May:
India and Russia have suspended efforts to settle bilateral trade in rupees, after months of negotiations failed to convince Moscow to keep rupees in its coffers, two Indian government officials and a source with direct knowledge of the matter said.
This would be a major setback for Indian importers of cheap oil and coal from Russia who were awaiting a permanent rupee payment mechanism to help lower currency conversion costs.
With a high trade gap in favour of Russia, Moscow believes it will end up with an annual rupee surplus of over $40 billion if such a mechanism is worked out and feels rupee accumulation is ‘not desirable’, an Indian government official, who did not want to be named, told Reuters….
The rupee is not fully convertible. India’s share of global exports of goods also is just about 2% and these factors reduce the necessity for other countries to hold rupees.
By Tsvetana Paraskova, a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. Originally published at OilPrice
India’s government is expected to reject demands from Russian oil companies to pay for Russia’s crude oil imports in Chinese yuan, Indian officials told Bloomberg on Friday.
Russia and its companies need Chinese currency as Russian trade has become much more reliant on China after Putin’s invasion of Ukraine and the sanctions on Russia. Moscow has a lot of Indian rupees, but it can’t spend them all while it needs yuan. Russian firms have largely ditched dollar and euro payments due to the Western sanctions and the fact that Russia has been cut off from the SWIFT banking payment system.
Russian oil companies have been asking lately for payments in yuan, but the Indian government – which owns 70% of the refiners in the world’s third-largest crude oil importer – will not agree to these demands, according to Bloomberg’s sources.
Some crude cargoes from Russia to India have been recently delayed because the parties have failed to agree on the currency of the payment, sources at refiners told Bloomberg.
Earlier this week, unnamed Finance Ministry sources told Reuters that payment in Chinese currency of seven cargoes of Russian crude oil imported by state-run Indian oil refineries is being held up over the Indian government’s new-found hesitancy to accept this form of payment.
State-run Indian Oil Corporation has settled purchases in yuan previously, while Bharat Petroleum Corp and Hindustan Petroleum have not yet resorted to the Chinese currency, though direct Russian suppliers have requested this.
India has hiked imports of Russian crude in the past year due to the cheaper Russian supply compared to crudes from the Middle East.
Between April and September, the first half of India’s 2023/2024 fiscal year, Indian imports of Russian crude oil more than doubled to 1.76 million barrels per day (bpd) from 780,000 bpd in the same period of the 2022/2023 year, per vessel-tracking data cited by Reuters.
OPEC had a record-low share of India’s oil imports between April and September, as the world’s third-largest crude importer more than doubled purchases of Russian crude, according to industry and trade data compiled by Reuters.