India Champions Adoption of Rupee in International Trade, Settles Crude Oil Payments in Local Currency

India, the world’s third-largest energy consumer, is actively promoting the use of its local currency on the global stage as it seeks similar agreements with other suppliers. In a groundbreaking move, India recently made its first-ever payment for crude oil purchased from the UAE in rupees, signaling a strategic shift towards reducing transaction costs and avoiding currency conversions.

As a significant oil importer with over 85% of its oil needs met through imports, India has strategically pursued a three-pronged approach. This involves procuring oil from the most cost-effective sources, diversifying suppliers, and ensuring compliance with international obligations, such as price caps for Russian oil in the wake of the Ukraine conflict.

While this approach has yielded substantial savings, India is now taking steps to settle trade transactions in rupees rather than dollars, especially in the context of increased purchases of Russian oil, which faced boycotts from some Western nations post the Ukraine conflict. The Indian Oil Corporation (IOC) exemplified this shift by paying the Abu Dhabi National Oil Company (ADNOC) in Indian rupees for a million barrels of crude oil, following an agreement between India and the UAE in July for rupee settlements.

Furthermore, India has extended this initiative to certain Russian oil shipments, challenging the long-standing convention of using the US dollar as the standard payment currency for crude oil imports. The Reserve Bank of India’s decision to allow multiple banks to settle trades in rupees with 18 nations has played a pivotal role in enhancing the rupee’s prominence in cross-border payments. Since this regulatory change, Indian authorities have been actively urging major oil-exporting nations, including Saudi Arabia and the UAE, to consider accepting Indian rupees for trade settlements, marking a significant paradigm shift in global trade dynamics.