Some Russian oil suppliers are demanding payment in yuan, according to a senior Indian official directly involved in the negotiations and another senior person at a state-owned oil refiner.The two people asked not to be identified as the discussions are private.
Prime Minister Narendra Modi’s government won’t agree to those requests, according to the two people and two other Indian government officials. Almost 70% of India’s refiners are government-owned, which means they would need to follow orders on payment instructions from the ministry of finance.
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Indian Oil Corp, the biggest state refiner, had made a yuan payment for Russian crude in the past, although the government has since clamped down on that. Private refiners could also settle payment in yuan, although there are no official or industry figures to show the magnitude.
Russia has an excess supply of rupees, which it’s struggling to use, while at the same time its demand for yuan has grown sharply in the past year as the economy becomes more reliant on China for imports. Russian businesses have been settling more of their trade in yuan, with the Chinese currency this year replacing the dollar as the most traded currency in Russia.
Indian refiners mostly pay for Russian oil imports in dirhams — the currency of the United Arab Emirates — US dollars, and a small amount of rupees, if oil prices are above the $60 a barrel cap imposed by the US and its allies on Russian oil. While the yuan is sometimes used in smaller transactions, Russian oil suppliers are requesting that the Chinese currency be the main unit of transaction for oil trade, according to the senior Indian government official.
Delayed payments
An executive from an Indian oil refiner, who asked not to be identified, said payment for about four to five cargoes had recently been delayed because the parties involved failed to agree on the currency of exchange.
Spokespeople at the Reserve Bank of India, ministry of finance and the ministry of petroleum and natural gas didn’t immediately respond to email requests for information. State-owned refiners Indian Oil, Bharat Petroleum Corp and Hindustan Petroleum Corp also didn’t respond. A spokesperson at Nayara Energy, whose single biggest shareholder is Russia’s Rosneft PJSC, declined to comment.
India’s resistance to transacting in yuan underscores its difficulty in balancing relations between Russia, an important economic ally, and China, a geopolitical rival. Russia is now the top crude supplier to India, making up almost half of the South Asian nation’s purchases.
At the same time, relations between India and China have remained strained as border disputes in the Himalayas continue to simmer and as the world’s two most populous nations vie for global influence, especially in the developing world.
Popularizing the yuan at the expense of the rupee also hurts India’s own efforts to internationalize its currency and would risk a backlash against Modi and his government as he seeks a third term in office in elections next year. India was the only nation in the BRICS bloc — comprising Brazil, Russia, India, China and South Africa — which opposed the introduction of a common currency, fearing it would eventually favor the yuan.
Russia’s excess rupees
Russia has accumulated billions of dollars worth of rupee assets given its wide trade surplus with India, but it’s struggling to use the funds. The rupee isn’t a fully convertible currency internationally, making it difficult to use in global trade.
Russian foreign minister Sergei Lavrov said in May the build-up of rupees is a “problem” and discussions were taking place on how the funds can be transferred into another currency.
Indian refiners want to use dirhams over yuan in order to comply with the government’s instructions, according to one of the people familiar with the matter. However, some suppliers of Russian oil are not in favor of using the UAE’s currency since it requires them to conduct the transactions out of Dubai, which would result in more scrutiny of the funds, the person said.