According to sources, Indian refiners have started using Chinese yuan to pay for certain oil imports from Russia. This development resulted from Western sanctions in response to the Ukraine invasion, which compelled Moscow and its customers to seek alternative payment methods to the U.S. dollar and euro.
An Indian government source revealed that some refiners made payments in alternative currencies like the yuan when banks refused to facilitate trade settlements in dollars.
Three knowledgeable sources reported that in June, the primary buyer of Russian crude oil in India, Indian Oil Corp (IOC), had become the first state refiner to pay for specific Russian purchases using the yuan.
Sources indicated that the amount of Russian oil purchased by Indian refiners with yuan remained uncertain. They confirmed that IOC had made yuan payments for multiple oil shipments.
Two sources confirmed that at least two out of the three private refiners in India were making yuan payments for certain Russian imports. Reliance Industries Ltd, Russian-backed Nayara Energy, HPCL Mittal Energy Ltd and IOC refrained from providing any response to the comment request.
Previously, two sources said that the State Bank of India had rejected the planned payment in dollars by IOC for a shipment supplied by the Russian petroleum refineries company Rosneft.
However, sources said that in June, IOC had engaged ICICI Bank, a private-sector Indian lender, to complete the trade settlement with Rosneft. They said the Bank of China received the payment in yuan. One source with direct knowledge of the matter said that after that, IOC had employed the same yuan payment method for other cargoes from Rosneft.
According to an additional source, Bharat Petroleum Corp Ltd was considering using yuan for payments related to Russian oil. The source mentioned that several traders or sellers were increasingly requesting yuan payments.
Chinese experts believe that if India’s reported adoption of yuan settlement is confirmed, it will influence other emerging economies and contribute to the internationalization of the Chinese currency.
“It will further expand the use of the yuan in international trade,” Dong Dengxin, director of the Finance and Securities Institute of the Wuhan University of Science and Technology, said.
He explained that since both countries are “BRICS members,” their adoption of yuan settlement by India and Russia would catalyze other emerging economies and developing countries to follow suit.
Indian refiners also turn to dirham
Sources also said that Indian refiners had used the United Arab Emirates dirham to settle non-dollar payments related to Russian oil purchases. According to government sources, while the first choice is to pay in dollars, Indian refiners opt for alternative currencies like dirham and yuan when requested by the sellers.
Reuters reported in March that India had urged banks and traders to avoid using the yuan to pay for Russian imports due to political differences with China. It is uncertain whether the recent purchases suggest a change in India’s position.
In May, India witnessed a significant increase in imports from Russia, reaching a record high. Russian crude oil accounted for 40 percent of India’s total oil imports. It marked a substantial increase from the 16.5 percent recorded a year earlier.
Indian officials have chosen not to actively support the measures taken by the West in response to the Ukraine conflict. Although India is not participating in these restrictions, its banks and financial institutions are cautious when processing payments to avoid unintentionally violating other measures imposed on Russia.
On December 5, the European Union, G7 countries and Australia implemented a restriction on Russian seaborne oil exports, setting a price cap of $60 per barrel. This measure prevents Western companies from offering insurance and related services to shipping companies transporting Russian oil unless the cargo is acquired at or below the specified price.
On February 5, a similar initiative was implemented, specifically targeting petroleum exports. Under this measure, the price of refined petroleum products imported from Russia is capped at $100 per barrel for diesel and $45 per barrel for fuel oil. The primary goal of these actions is to curtail Moscow’s energy revenues.