After the US-led West imposed economic sanctions against Moscow, India began to buy Russian oil in roubles and United Arab Emirates dirhams. By using these currencies to bypass US sanctions, India has undermined the dollar’s long-standing dominance in international oil trade, according to Reuters.
The London-based outlet acknowledged, in an article titled “India's oil deals with Russia dent decades-old dollar dominance,” that “sanctions on Russia have begun to erode the dollar’s decades-old dominance of international oil trade as most deals with India - Russia's top outlet for seaborne crude - have been settled in other currencies.”
Last December, G7 countries, the European Union and Australia agreed to impose a price cap on exported Russian oil to prevent Moscow from supplying the world at a higher price. In an effort to crackdown on Russia’s bypassing of sanctions, Washington and London added the Moscow and Abu Dhabi-based Russian bank MTS to the sanctions list in February.
The Indians are seemingly confident in bypassing these latest sanctions though.
Citing an Indian refining source, Reuters reported: “Russian suppliers will find some other banks for receiving payments. As it is, the government is not asking us to stop buying Russian oil, so we are hopeful that an alternative payment mechanism will be found in case the current system is blocked.”
According to the International Energy Agency, India increased its imports of Russian oil 16 times in 2022. This already accounts for about a third of the country’s total supplies.
Due to this, the South Asian country has created a framework to establish trade with Moscow in Indian rupees if new sanctions are imposed or if transactions in the Russian currency are no longer possible.
For the Indian refiners who started settling some Russian oil purchases in roubles in recent weeks payments have been processed in part by the State Bank of India via its nostro roubles account in Russia. Those transactions, according to the sources, are mostly for oil purchases from Gazprom and Rosneft, with Bank of Baroda and Axis Bank handling most of the dirham payments.
On November 13, 2022, the Indian Express reported that New Delhi intended to double the volume of trade with Russia using the Indian currency.
Trade between the two countries has increased largely due to an increase in imports of Russian oil by India. In previous years, India imported less than 1% of its total crude oil from Russia. It now imports about 22% of its needs. In October 2022, Russia became India’s biggest oil supplier, surpassing even Iraq and Saudi Arabia.
“The entire India-to-Russia story is a long-term story, which will not suddenly stop. It's going to be a new kind of feature of the market,” said Viktor Katona, the lead crude oil analyst at commodities intelligence firm Kpler.
The West must now begrudgingly watch-on as India deepens its ties with Russia. The West’s preferential treatment of Pakistan over India allowed a prosperous relationship to develop between Moscow and New Delhi. And it is on this basis that Russia-India relations continue to develop.
In fact, Katona believes that Moscow prefers to sell its crude to India instead of China, and not just for reasons of distance and redirecting barrels that used to ship to Europe. A key reason, according to the expert, is that Indian companies pay on a delivered basis, meaning they do not handle the shipping and insurance. In this way, Russia can maximise its profits as Chinese purchasers might insist on using their own fleets. Russian companies do not have equity in China; however, they do have ownership stakes in Indian refineries.
None-the-less, that does not change the fact that India and China are both buying crude below market levels while importers in Europe and the US must pay full price.
At the same time, India’s general insurers want to establish a larger marine insurance pool to cover the risks of transporting crude oil, edible oil, project machinery and fertiliser from the war-torn regions of Russia and Ukraine. It is expected that such a mechanism will facilitate trade between the two countries.
An insurance pool allows multiple insurance companies to band together for a specific cover when the risks are seen as being too high for a single company. There is a high demand for such an insurance cover as India-Russia trade has massively jumped. India's imports from Russia till December were $32.81 billion compared to $9.86 billion in FY22 and $5.48 billion in FY21.
For this reason, India has been forced into using other financial mechanisms outside of Western institutions, which naturally contributes to the de-dollarisation of the global economy. In this way, the financial targeting of Russia has only been a self-inflicted wound on the West as they have led to the establishment and rapid progression of alternative payment methods, something India has played a key role in.
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