India-Russia Oil Trade: Rupee-Ruble Trade on the Cards
-
India bought 3 million barrels of crude oil from Russia at a discounted rate
-
The heavy discount on crude oil prices is part of efforts to revive the crippling business and trade caused by the sanctions imposed by the western countries on Russia
-
The trade payment could be made in rupee-ruble instead of the conventional euro-US dollar payment system
India-Russia Oil Trade: Rupee-Ruble Trade on the Cards
India is the third-largest importer of oil globally, but it only imports a meager 2-3% of its oil demand from Russia. Meanwhile, hit with multiple sanctions, Russia offered oil at a heavily discounted rate to India. India has been looking for methods to ward off the inflationary pressures amidst a volatile oil market caused by the current sanctions imposed by western countries on Russia, leading to a rise in the global oil prices. This heavily discounted price on Russian oil will help ease the rising energy bills for Indians and help Russia minimize the effects of a falling ruble.
The Indian Oil Corporation (IOC) recently bought 3 million barrels of Russian Urals from Vitol for delivery in May 2022. The purchase made by IOC is the first since the Russia-Ukraine war broke out. IOC made the purchase on a delivered basis, wherein freight and insurance are included, instead of the previously used free-on-board (FOB) basis, which involves insurance and freight risk. Earlier, payment settlement of these trades used to happen in euros and US dollars, instead of the current Indian rupee and Russian ruble.
Rupee-Ruble Payment Mechanism
The sanctions on Russia and the ongoing ban of Russian banks from the SWIFT mechanism prompted India and Russia to think of better payment mechanisms to mitigate the effects on cross-country trade. Under this payment mechanism, both countries shall pay in rubles and rupees instead of being dependent on euros and US dollars, making the countries less vulnerable to sanctions.
In 1953, the Indo-Soviet Trade Agreement was inked, which led to the use of the ruble and rupee for trade payments, where the State Bank of the USSR (now Bank of Russia) and Reserve Bank of India (RBI) maintained the payment accounts for these trades.
The present-day ruble-rupee mechanism would require a Russian bank to open an account in India, and an Indian bank to open an account in Russia. These two designated banks would then collect and carry out the payments in their countries. As a result, any Indian exporter would receive payments directly in Indian rupees, and for a Russian exporter, the same payment would happen in the Russian ruble.
As for the exchange rates, Russia and India do not have a direct rupee-ruble conversion rate, and the conversion is pegged to the US dollar, called the fixed exchange rate. The ruble has fallen by almost 39% against the US dollar in the recent past. Given the volatility, a third currency could be introduced as a point of reference, wherein the exchange rates are not pegged to any currency but decided from time to time by the two countries. Such a system is called the floating exchange rate system.
Such a payment system is beneficial to both countries when the share of imports and exports is almost the same. Still, with India being a net importer of Russian goods, the longevity of such a system remains to be seen. On the flip side, using the floating exchange rate system eliminates the dependency on the US dollar and reduces the impact of western sanctions.
Related Data & Insights
Still looking?
Don’t wait - discover a universe of connected data & insights with your next search. Browse over 28M data points across 22 industries.
Explorer
Access more premium companies when you subscribe to Explorer