Oil refiners in India are now using Emirati dirhams to pay for most of the Russian oil they purchase, instead of US dollars. Reuters reported that these purchases of Russian crude oil are being done via traders based in the United Arab Emirates, using the country’s currency to bypass sanctions on Russia by the United States of America and her allies.
While Western sanctions against Moscow are not recognised by India, and purchases of Russian oil may in any case not violate them, banks and financial institutions are cautious about clearing payments so as not to unwittingly fall foul of the many measures imposed against Russia following its invasion of Ukraine.
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The Indian authorities have not supported the measures against Russia, aimed at cutting Moscow’s energy revenues.
Out of concern that they may not be able to settle trade in dollars, especially if the price of Russian crude rises above a cap imposed by the G7, Indian refiners turned to alternative methods of payment.
The refiners previous attempt to pay traders for Russian crude in dirhams through Dubai banks failed, forcing them to switch back to the US dollar.
With India’s top bank, the State Bank of India (SBI) now clearing the dirhams payments, according to Reuters source, the effort is likely to record success this time.
The shift to dirham payments was also triggered by the SBI asking refiners looking to make dollar payments for Russian crude to provide a breakdown of the costs of the oil, freight and insurance, allowing it to vet trade and avoid violating the cap.
SBI has branches overseas, including in the USA, hence the need avoid getting caught up in a violation of the oil cap mechanism.
Indian refiners typically buy Russian crude from traders at a price that includes delivery to India.
Indian refiners mostly buy Russian crude from Dubai-based traders including Everest Energy and Litasco, a unit of Russian oil major Lukoil (LKOH.MM).
The four sources who spoke to Reuters said Indian refiners are buying Russian oil on a delivered basis to mitigate any risks arising during shipping, and so far the calculated cost at the point of loading has been below the price cap.
India’s oil secretary Pankaj Jain last month said Indian companies were not facing any problems in paying for Russian oil as the latest actions by the West do not impact the trade settlement mechanism.
A $60-per-barrel price cap on Russian seaborne oil exports was introduced by the EU, G7 countries, and Australia on December 5. The mechanism prohibits Western companies from providing insurance and other services to shippers of Russian oil unless the cargo is purchased at or below the set price.
Another measure targeting petroleum exports from Russia came into force on Sunday, February 5. The measure sets the price of refined petroleum products imported from Russia at $100 per barrel for diesel and $45 per barrel for fuel oil.
Nnamdi Maduakor is a Writer, Investor and Entrepreneur
