BI News, New Delhi : India is pushing back against Russian oil suppliers’ demands to pay for crude imports in Chinese yuan, as simmering tensions between New Delhi and Beijing continue.
Anonymous senior Indian officials involved in the negotiations told this correspondent that Prime Minister Narendra Modi’s government has rejected the request for transaction in yuan. Indian Oil Corporation, the biggest state refiner, had made a yuan payment for Russian crude in the past, although the govt has since clamped down on that.
Most of India’s refiners are government-owned and must follow payment instructions from the Ministry of Finance. Typically, Indian refiners mostly pay for Russian oil imports in dirhams — the currency of the United Arab Emirates — 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.
Russia’s growing demand for yuan
Russia has a surplus of rupees and struggles to use them, while its demand for yuan has significantly increased due to its growing reliance on China for imports.
Russian businesses have been settling more of their trade in yuan, with the Chinese currency replacing the dollar as Russia’s most traded currency this year.
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.
Russia is less keen to accept rupees as the bilateral trade balance is tilted in Moscow’s favour. The rupee is also not a fully convertible currency internationally and thus difficult to use in global trade. Meanwhile, Russia’s economy has become ever more reliant on China.
Impact on India’s currency internationalization efforts
Promoting the yuan over the rupee may hinder India’s currency internationalization efforts and potentially lead to a backlash against Modi’s government as it seeks a third term in the upcoming elections. A piece in Bloomberg argued that promoting the yuan over the rupee would hinder New Delhi’s attempts to internationalize its currency. It also argued that the Modi government doing so would, ahead of the 2024 polls, face criticism for doing so.
India was the only nation in the BRICS that opposed the introduction of a common currency, fearing it would eventually favor the yuan.
Meanwhile, Russia finds it hard to spend the billions of rupee assets it has, because the rupee isn’t easily exchanged worldwide.
Payment delays and strained relations
An executive from an Indian oil refiner told that payment for about seven cargoes had recently been delayed because the parties involved failed to agree on the currency of exchange.
India’s reluctance to transact in yuan underscores the challenges it faces in managing relations between Russia, its long-term ally, and China, with whom it has ongoing border disputes in the Himalayas. Some people see using the yuan as benefitting China, when ties between the two neighbours remain strained after a border clash in 2020 in which 20 Indian soldiers and four Chinese troops were killed.
In the GMI Summit, PM Modi says IMEEC will transform the landscape of new global trade.
Reliable sources are saying that the Centre’s ‘discomfort’ over letting state-controlled refiners pay for Russian oil imports with Chinese currency has held up the payment for at least seven cargoes.
However, the disagreement has not yet impacted deliveries to India – which is Russia’s top importer seaborne oil – as state refiners search for alternative ways of making payment.
Indian refiners mainly Indian Oil, BPCL and HPCL buy most of their Russian oil from traders, while making some direct purchases from Russian entities. Refining sources said traders have been ready to strike deals in dirhams, but Russian sellers have held out for yuan.
