India takes historic leap by paying first rupee for oil in UAE

India has made history by paying for crude oil purchased from the United Arab Emirates in rupees for the first time, signaling a strategic move to promote global use of its local currency. As the world’s third-largest energy consumer, India aims to strike similar deals with other suppliers while pushing for the internationalization of the rupee. However, officials stress that the process is gradual, with no specific goals set.

The report said that given India’s dependence on imports for more than 85% of its oil needs, the country has adopted a multi-pronged approach, sourcing from the most cost-effective suppliers, diversifying its sources and complying with international obligations. Have focused on. This strategy proved beneficial during the Ukraine War, helping India save billions by increasing imports of Russian oil, despite some reluctance in the West.

According to reports, to further streamline its transactions and cut costs by eliminating dollar conversion, India signed a rupee settlement agreement with the UAE in July. Subsequently, Indian Oil Corporation (IOC) paid in Indian rupees for one million barrels of crude oil from Abu Dhabi National Oil Company (ADNOC). India has also settled some Russian oil imports in rupees.

Traditionally, the default payment currency for crude oil imports has been the US dollar, which offers liquidity and low hedging costs. However, the Reserve Bank of India has taken steps to boost the rupee’s role in cross-border payments, allowing more than a dozen banks to settle trade in the rupee with 18 countries since last year.

“We have to take care that this (rupee settlement) does not increase costs and is not detrimental to business in any way,” an official was quoted.

‘During the financial year 2022-23, no crude oil imports by oil PSUs were settled in Indian Rupees. Crude oil suppliers (including the UAE’s ADNOC) continue to express their concerns over the repatriation of funds into the preferred currency and highlight the risks of exchange fluctuations as well as the high transaction costs associated with the conversion of funds,’ The ministry told the panel.