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As Russian oil tops $60/barrel G7 cap, India caught in a bind

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India’s informal diktat to oil PSUs against using Chinese yuan is escalating the payment crisis with Russia as the Urals grade oil imported from the country has now breached the West’s price cap of $60 per barrel bringing payments in dollars to a near halt, said sources.

“Paying in dollars is no more an option for India since Russian Urals is now breaching the $60 price cap fixed by the G7 nations. Chinese yuan payments would work well for Russia, but the government is not willing to authorise PSUs to do so as it does not want to help strengthen China’s currency,” a source tracking the matter told businessline.

The private sector, however, could pay in yuan for Russian crude sourced by it but accessing the currency from the international market in bulk may not be so easy given the fact that it was not fully convertible, the source added. 

India imported about $40 billion worth of crude from Russia over the past year as Moscow offered steep discounts following sanctions imposed on it by Western countries in response to its war against Ukraine. Much of it was sourced by oil PSUs which have increased their purchases in the recent months. 

Also read: Russia’s oil production cut starts to eat into India’s import volumes

Crude import from Russia

In April-May 2023, India’s crude import from Russia was valued at $8.5 billion which was almost double of its import from Iraq at $4.6 billion and from Saudi Arab at $4 billion, per Commerce & Industry Ministry figures.

Payment for Russian imports in UAE dirham, which is another option acceptable to Moscow, is not working smoothly anymore as UAE banks, which are under scrutiny of the Financial Action Task Force (FATF), are not eager to participate, the source added.

“Given the fact that Russia is not ready to take payments for oil in rupees, as its imports from India are low and it does not want to be stuck with rupee balances in its vostro accounts with Indian banks, the situation at hand is very tricky,” the source added.

Russia is already stuck with over $2 billion of rupee payments made by India for defence deals over the past year. “Russia has the option of investing its rupee balance in Indian government securities or stock markets, but it is not keen on doing so,” the source said.

Since both Russia and India are interested parties as both benefit from the transaction in oil, a mutually acceptable way for oil payments has to be arrived at, the source added.



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