Indian Refiners Make Landmark Move, Opt for Yuan Payments in Russian Oil Deals

Some oil shipments from Russia are now being paid for by Indian refiners using Chinese yuan.

The action is being taken as Western sanctions continue to prevent Moscow and its clients from making payments in US dollars, forcing them to look for alternative currencies.

With Russia’s invasion of Ukraine, trade patterns for its main export have changed, with India becoming as the top consumer of Russian oil transported by sea.

 However, India has faced challenges in finding suitable payment methods due to evolving sanctions.

Traditionally, the US dollar has been the dominant global oil currency, including for Indian purchases. 

However, with Moscow’s exclusion from the dollar and euro financial networks due to international sanctions, the Chinese yuan has gained increasing importance in Russia’s financial system.

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China and India Embrace Yuan for Russian Oil Trade Amid Sanctions

Some oil shipments from Russia are now being paid for by Indian refiners using Chinese yuan.

China has also shifted to the yuan for most of its energy imports from Russia, making the yuan a significant player in oil trade settlements.

According to three sources acquainted with the situation, Indian Oil Corp, the country’s largest importer of Russian crude oil, became the first state refiner to make some Russian imports in yuan in June.

Although the precise volume of Russian oil bought by Indian refiners with yuan is unknown, Indian Oil is said to have paid in yuan for a number of cargoes.

This shift has contributed to Beijing’s efforts to internationalize its currency, with Chinese banks actively promoting the use of yuan for Russian oil trade.

Since the imposition of sanctions on Moscow, Indian refiners have primarily sourced Russian crude from Dubai-based traders and Russian oil companies such as Rosneft, Lukoil’s Litasco unit, and Gazprom Neft, according to shipping data compiled by Reuters.

While Western sanctions are not officially recognized by India, Indian banks remain cautious about facilitating payments for Russian oil imports.

Due to worries about sanctioned companies, the State Bank of India, the largest lender in the nation and a major banker for state refineries, denied Indian Oil Corp.’s proposed dollar payment for a shipment delivered by Rosneft in May.

To get around this problem, Indian Oil used the private Indian lender ICICI Bank to complete the trade by paying the Bank of China in yuan.

 According to sources, a private refiner has also implemented the same system for yuan payments.

The recent surge in Indian imports from Russia, which accounted for 40% of India’s overall oil imports in May, has impacted purchases from Iraq and Saudi Arabia, resulting in a record high. 

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Source: Reuters via Yahoo News, Bloomberg

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