Latest Posts

India-Russia oil trade in rupees faces uncertainty amid sanctions

India and Russia are facing challenges in settling their bilateral trade in rupees, especially for oil imports, as Moscow is reluctant to accumulate the Indian currency amid Western sanctions over its invasion of Ukraine.

India has been exploring a rupee-rouble payment mechanism with Russia since last year, hoping to continue trade with its strategic partner and secure cheaper oil supplies from the world’s second-largest producer.

India and Russia have suspended efforts to formalize the mechanism after months of negotiations failed to convince Moscow to keep rupees in its coffers. Russia is not comfortable holding rupees.

This would be a major setback for Indian importers of discounted oil and coal from Russia, who were awaiting a permanent rupee payment mechanism to help lower currency conversion costs and bypass sanctions.

India imports 86 percent of its oil requirements, and only 2 percent from Russia. However, it can ramp up those purchases, as Russia has offered to sell at a discounted rate and bear the cost of transportation and insurance.

The prospect of cheaper supplies from Russia would help India manage its finances better, as it faces a widening current account deficit and rising inflation due to soaring global oil prices.

However, the rupee-rouble mechanism also depends on India’s ability to increase its exports to Russia, as the trade balance is largely skewed towards imports. India’s exports to Russia include pharmaceuticals, agricultural products, machinery and textiles.

India is considering establishing a payment mechanism in local currencies to allow it to continue trade with Russia, which has been hit with Western sanctions in response to its invasion of Ukraine. New Delhi is proceeding with purchases of Russian crude at discounted prices despite pressure from the United States.

However, Russia has said that it has a problem with billions of rupees it has in India that need to be converted.

Experts say that India and Russia need to find alternative ways to sustain their trade relations, which have strategic and historical significance for both countries. They also say that India needs to diversify its oil sources and reduce its dependence on imports.

Latest Posts

Don't Miss