An analytical editorial by Robert Stone
In a recent development, Indian refineries have decided to pay for most of their Russian oil purchased via Dubai-based traders in United Arab Emirates dirhams instead of U.S. dollars. The move was made after Indian refiners and traders expressed concern that they may not be able to continue to settle trades in dollars, especially if the price of Russian crude rises above a cap imposed by the Group of Seven nations and Australia in December.
The shift towards dirham payments has been made possible by the State Bank of India (SBI), which is now clearing these dirham payments, providing details of transactions that were previously not reported. The SBI’s decision was also triggered by its request for refiners looking to make dollar payments for Russian crude to provide a breakdown of the costs of oil, freight, and insurance. This move allowed the SBI to vet the trade and avoid violating the cap.
Despite Western sanctions against Russia not being recognized by India and purchases of Russian oil not necessarily violating them, banks and financial institutions are cautious about clearing payments to avoid falling foul of the many measures imposed against Russia following its invasion of Ukraine. The G7 price cap prohibits any Western company, such as insurance and shipping service providers that underpin much of global trade, from involvement in trading Russian crude if the purchase price is above $60 a barrel at the loading point in Russia.
Indian refineries mostly buy Russian crude from Dubai-based traders, including Everest Energy and Litasco, a unit of Russian oil major Lukoil. Indian refineries 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.
This shift towards dirham payments could also aid Russia’s efforts to de-dollarise its economy in response to the Western sanctions. India’s oil secretary, Pankaj Jain, stated last month that 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. The move towards dirham payments is expected to ensure smooth and hassle-free transactions between Indian refineries and Russian oil traders.
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