India Pays for Russian Oil in Dollars

In India, refiners are paying for oil from the Russian Federation in dollars after attempts to do so in dirhams failed.

Payment in dirhams

In India, companies continue to buy Russian oil in dollars. Mashreq Bank in Dubai refuses to process payments in UAE dirhams. Thus, at least two refiners are experiencing payment difficulties.

Russia asks buyers of its commodities to pay in rubles or other currencies. Due to sanctions by the United States and its allies, Moscow seeks to avoid the dollar and the euro. Both currencies are generally used to price contracts.

In July, traders supplying Russian oil asked companies based in India to pay in dirhams. An invoice from one of the refiners showed a calculation of payments in dollars when the payment was supposed to be made in dirhams. In addition, the invoice states that payments were to be made to Gazprombank via Mashreq Bank, its correspondent bank in Dubai.

New procedures

However, payments in dirhams are not made, as the Mashreq Bank refuses to facilitate trade. For example, an Abu Dhabi branch of the State Bank of India processes payments. In addition, payments are made in dollars.

The United Arab Emirates and India avoid strong criticism of Russia’s actions in Ukraine. In India, the central bank is setting up a mechanism to facilitate international trade in rupees. The measure seeks to foster trade ties with Russia in the event of stricter Western sanctions against Moscow.

The new rules largely mirror the barter system used with Iran. Thus, importers based in India deposited their payments in rupees in a “vostro” account in commercial banks in Tehran. The payment was made to the Indian bank UCO, a state-owned lender.

Rising prices

UCO Bank obtained permission from the Central Bank of India to open a special rupee account for the Russian bank Gazprombank. Thus, importers and exporters must agree to invoice in rupees and pay the exchange rate conditions. Finally, to make rupees attractive, India is allowing foreign banks to invest in government securities.

According to government data, Indian imports from Russia reached $17.24 billion in April-August. A year earlier, imports amounted to $3.2 billion. This report highlights the sharp increase in oil purchases.

Western sanctions are causing many oil importers to avoid Moscow. This is pushing up Russian spot crude prices. India-based refiners thus buy exports at lower prices than Middle Eastern commodities.