Indian importers are exploring various alternatives to pay for crude from Moscow, including trading via Singapore and Hong Kong, after the price of Russian Ural recently breached the $60 cap fixed by OECD nations. This is because Russia is not ready to accept rupee transactions for oil and US dollars can no longer be used because of Western sanctions kicking in.

“Indian importers of crude from Russia are using yuan and dirham to pay for a small part of their imports as there are various limitations on the use of these two currencies. An important option that importers have now started exploring is trading via Singapore and Hong Kong where one can pay using local currencies as well as yuan,” an official tracking the matter said.

Also read: Russian crude oil imports to India likely to be impacted during summers

Rising oil imports

India’s crude oil imports from Russia in FY23 increased 14 times to $31.02 billion from $2.2 billion in the previous fiscal. This was because Moscow offered steep discounts to India following economic sanctions imposed on it by the West in response to its attack on Ukraine in February 2022.

As oil & gas, food, medicines and other essentials were kept out of the West’s sanctions, which meant that third countries were not stopped from trading in these items with Russia, India paid for the oil in mostly US dollars till recently. However, the G7 had imposed a price cap of $60 per barrel on Russian oil, above which, it said, transactions would attract sanctions. “Now that prices of Russian crude have started breaching the cap, with a rise in prices and a drop in discount, payments have become a headache for traders,” the official said. 

Russia is willing to accept yuan in payment, but the Indian government has placed an unofficial diktat against it forbidding oil PSUs to use China’s currency. “There is no ban against its use for private traders, but it is being used sparingly because of convertibility issues and the government’s stand against it,” the official said.

Watch: Energonomics. Is it time for India to explore alternative payment mechanism for crude oil purchases?

Preferred option

Importing Russian crude via trading units in Singapore and Hong Kong is thus emerging as a preferred option as it allows billing for the oil to be done in those countries and Indian importers can then pay not only in Singapore dollar and Hong Kong dollar but also in yuan. 

“In fact, oil can be sourced by private traders from, say Singapore, refined and then can be re-sold to oil PSUs here. As the billing would have been done in Singapore, there won’t be any problem with that,” the official explained.

Also read: India, China account for 80% of Russia’s crude oil exports in May 

In fact, importers of coal from Russia, too, are now increasingly looking at importing through Singapore and Hong Kong. “Much of the trading or buying of coal from Russia is now done via Singapore or Hong Kong-based entities and using alternative currencies like Singapore dollars,“ said an importer of coal from Russia. It is also being explored if Vostro accounts can be used for transacting in Singapore dollars, he added.

Also read: Russia replaces Middle East as India’s largest crude oil supplier in May

India is running a huge trade deficit with Russia, which touched $43 billion in 2022-23, because of increase in its oil imports. While India imported goods worth $49.35 billion, its exports were at $3.14 billion. Because of the imbalance, the rupee payment mechanism, approved by the RBI, has not worked so far.