India faces complex payment situation as Russian oil tops $60/barrel cap

India used to pay in dollars, however, this is no longer possible as the price exceeds G7 nations' fixed cap, and Russia is not keen on accepting the Indian rupee

India finds itself in a challenging predicament regarding the payment crisis with Russia as the price of Russian Urals grade oil has breached the West's price cap of $60 per barrel.

India so far has paid for Russian oil in dollars. However, this is no longer feasible due to the Urals grade oil price exceeding the G7 nations' fixed cap, as reported by Businessline (BL). The country's public sector oil companies (PSUs) are refraining from using Chinese currency for payments, as the Indian government is reluctant to strengthen China's currency. The private sector could pay in Chinese yuan; however, obtaining enough from the international market may prove difficult due to limitations in currency convertibility.

Over the past year, India has imported approximately $40 billion worth of crude oil from Russia, taking advantage of significant discounts Moscow offers amid Western sanctions.

Russia's price shade to Indian refiners was less than the $60 per barrel price cap imposed by the West. However, they did charge a delivery rate between $11 to $19 per barrel, which is twice the normal rate.

In April-May 2023, India's crude imports from Russia amounted to $8.5 billion, surpassing the number of imports from Iraq and Saudi Arabia.

Another payment option acceptable to Russia is the UAE dirham. However, this method has encountered challenges as UAE banks, under scrutiny by the Financial Action Task Force (FATF), are reluctant to participate, added the report.

Moreover, Russia has shown little interest in receiving payments in the Indian rupee, as imports from India are relatively low. This is another reason to push towards the internationalisation of the rupee, which would make the local currency a more attractive and acceptable payment option for global transactions.

The current situation has created a challenge where both nations must find a mutually agreeable solution to the payment of oil imports.