Trade Payments Crisis Between India and Russia

  • Due to a variety of causes, India’s increased reliance on Russian oil supplies has created difficulties in completing payments.
  • The violation of the US and European nations’ oil price caps, smaller discounts granted by Russia, and the geopolitical repercussions of using alternative currencies have hampered the payment process.

Russian oil imports

  • Shift in Imports: Russia has surpassed major suppliers of oil to India, including Iraq, Saudi Arabia, and the United Arab Emirates.
  • Imports from Russia to India have increased, reaching more than $31 billion in 2022-23, over 13 times greater than the previous year.
  • Dominance in Supply: Russia controls a sizable percentage of the seaborne supply of Russian-grade oil priced under $60 per barrel.

Payments Currency

  • SWIFT Sanctions: Western sanctions against Russian banks have hampered payments by blocking transactions through the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system.
  • Oil transactions have generally been dollar-based, but the price ceiling and sanctions have forced India to investigate alternate payment systems.
  • Payments in Yuan and Dirham: Some non-dollar payments for Russian oil have been made in Chinese Yuan and UAE dirham.

Problems with the Rupee-Rouble Mechanism

  • Failure to Implement: Negotiations to restart the rupee-rouble trade agreement have been hampered by rouble convertibility concerns and rupee volatility.
  • Concerns about trade deficits: The growth in oil trade has resulted in a substantial trade deficit, which is expected to reach $43 billion in 2022-23, posing issues for India.

Geopolitical Consequences

  • Tense Relationships with China: Using the Chinese yuan for payments creates geopolitical issues, especially in light of continuing tensions between India and China.
  • Efforts to De-dollarize: The United States’ sanctions have spurred countries to investigate de-dollarization, seeking alternatives to the global reserve currency.

Possible Solutions

  • Opportunities for Investment: Bridging the trade imbalance with Russia could entail encouraging investments in Indian energy projects or Russian investments in Indian government bonds.
  • Roadmap for Rupee Internationalisation: India intends to expand the Indian rupee’s international acceptance, despite constraints connected to its purchasing power and global market share.
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