Welcome to our YouTube video! In this episode, we delve into the intriguing topic of India’s increasing reliance on Russian oil and the potential challenges it may face in terms of payment mechanisms.

As the Ukraine war led to a surge in crude oil prices, many countries, including India, turned to Russia for its more affordable crude. However, is trouble brewing beneath the surface?

Traditionally, India has relied on West Asia for its crude oil imports. However, since the start of the Ukraine war, there has been a significant shift. The region’s share of India’s total crude oil imports fell from 69 per cent in 2022 to 44 per cent in April of this year. In fact, recent reports from Bloomberg News revealed that Russian oil purchases surpassed combined shipments from Saudi Arabia and Iraq, reaching a daily volume of 2.2 million barrels in June. While sourcing crude oil from Russia has its advantages, payments have become challenging.

Historically, the US dollar has been the dominant currency used for oil transactions, thanks to the petrodollar system established between the US and Saudi Arabia. This mechanism was convenient and the dollar has become the dominant currency for oil trade. However, geopolitical tensions and sanctions have compelled buyers to seek alternatives to the dollar, especially when dealing with suppliers facing sanctions.

Russia, which is currently under strict Western economic sanctions, has faced difficulties in payment transactions. China and other countries are now using the Yuan to trade with Russia, but India has been hesitant to adopt the Chinese currency for this purpose.

The two countries explored options like the Rupee-Rouble payment mechanism, but it has several limitations. They have explored other options, including the suing currencies like the UAE’s Dirham, but no concrete decision has been made yet.

While buying Russian oil proves economically viable for India, it is crucial to consider the need for alternative payment systems in the face of potential geopolitical tensions. What is India’s back-up plan? Meanwhile, A recent Reuters report said that India used the Yuan to purchase Russian oil, despite their initital reluctance. What does this mean for India’s oil transactions?

Richa Mishra explains in this episode of Energonomics.

Watch now!

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