India, which has made it clear that it will not use Chinese yuan to purchase Russian oil, the domestic oil refiners are trying to resolve the payment mechanism at the earliest so that there is no disruption in supplies. Sources said that the UAE dirham could be used more extensively for oil transactions with Russia. “However, there are issues relating to payments and these need to be resolved,” said an official source.

Though the government has not officially asked oil refiners not to use the Chinese currency for oil purchase from Russia, transaction in yuan is something that the Centre is not comfortable with amid the ongoing tension with Beijing.

Oil and Gas Middle East, a news portal focused on energy, said that by rejecting Russian oil companies’ requests for yuan transactions amid geopolitical tensions, India has reinforced its “financial sovereignty and adhering to its payment guidelines.”

“India will be guided by its own interests and strategic autonomy in every field. Having said that, New Delhi also needs to resolve the payments issue,” the source said.

The rupee ruble payment mechanism which is in place is yet to take off despite about $1 billion worth of rupees going into Moscow. The Indian rupee is partly convertible.

“As for rupees, this is a problem because there are billions of rupees accumulated in accounts at Indian banks and we need to use this money,” Russian foreign minister Sergey Lavrov told reporters in India on Friday. “For this, rupees should be converted into other currencies. This is being discussed,” he said recently.

One of the ways that sanction-hit Russia could use the Indian rupee is through investments in government securities or even foreign direct investment for greenfield or brownfield projects.

“Putting cash into fast-growing India isn’t in itself a bad deal, but those are long-term investments, while the Kremlin needs convertible hard currency now to help fund its war machine,” Politico noted.

India’s oil imports from Russia could escalate further with the deepening of Israel Hamas war.

In September, India imported about 1.55 million barrels per day (bpd) of oil from Russia – an increase of 16 per cent over August. However, Commodities analytics firm Kpler noted that India’s imports of crude oil from Russia surged to a record high of 2.2 million barrels a day in June.

India imports about 85 per cent of its total oil requirements and an increase in global price, therefore, has a direct impact over its import bills. The third largest consumer of oil, India’s net import bill for oil and gas was $14.9 billion in July 2022 compared to $8.0 billion in July 2021. Besides Russia, Iraq and Saudi Arabia are the top suppliers of oil to India.

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