Russia's trade in oil with India hit by payment issues

MOSCOW, Russia: Russia's trade in oil with India, one of the most lucrative oil trade routes since the imposition of Western sanctions over Moscow's invasion of Ukraine, is being affected by issues involving payment in a currency other than the U.S. dollar.

Efforts to find alternatives have been thwarted by conversion difficulties and political obstacles.

In July, India, which has become Russia's biggest buyer of seaborne oil since European customers retreated due to sanctions, insisted on paying in rupees.

Russian oil suppliers could not do deals in Indian rupees after being advised by the Russian central bank that it would not accept the currency because Russia has limited opportunities to spend rupees as its imports from India are insignificant.

Around mid-August, at least two major Russian oil companies threatened to divert a dozen tankers carrying up to a million tons of oil heading to India to other destinations.

As a temporary solution, the cargoes were paid for in a combination of the Chinese yuan, the Hong-Kong dollar as a transition currency into the yuan, and the UAE dirham, which is pegged to the U.S. dollar.

The issue of finding a viable alternative to the dollar affects the top buyers of Russian oil, which are various African countries, China, and Turkey.

But, according to LSEG and Reuters data, India is still the leading buyer after China, purchasing more than 60 percent of Russian seaborne oil.

As scrutiny of the trade increases, the issue is likely to worsen.

In recent weeks, Washington imposed the first sanctions on owners of tankers carrying Russian oil priced above a Western price cap, the first enforcement of the cap since it was introduced late in 2022.

In addition, to ensure compliance with the price cap, several UAE banks have tightened control over Russia-focused clients since October, and at least two un-named banks have introduced price cap compliance declarations for clients involved in Russian crude, oil products, and commodity trading.

Since Western sanctions were imposed on Russia in February 2022, Moscow has moved from transactions in U.S. dollars and euros, the dominant global currencies, and is largely blocked from the international banking system.