Indian refineries have started exchanging the UAE dirham for US dollars, to pay for most of the quantities of Russian oil purchased, depending on trading companies headquartered in Dubai, United Arab Emirates.
Indian refiners and traders fear that they will not be able to continue settling trades in dollars, especially if the price of Russian crude rises above the ceiling imposed by the Group of 7 countries and Australia on December 5 (2022), according to what was seen by the specialized energy platform.
Although India does not recognize Western sanctions against Moscow, and its purchases of Russian oil do not constitute a violation, banks and financial institutions are cautious about liquidating payments, lest they inadvertently breach measures imposed on Russia following its invasion of Ukraine.
Russian oil price ceiling
In view of this, commercial companies were forced to find alternative payment methods, which could serve Russia’s efforts to remove the dollar from its economy in response to Western sanctions, according to the Business Standard website on February 4.
Moreover, previous attempts by Indian refiners to pay Russian crude in dirhams to dealers through Dubai banks failed, prompting them to revert to the US currency.
Four sources said that India’s largest bank, State Bank of India (SBI), is now clearing these dirham payments, and provided details of previously unreported transactions, according to Reuters.
The G-7 price cap bars any Western company, such as the insurance and shipping providers that underpin much of the world’s trade, from participating in trading Russian oil if the purchase price is above $60 a barrel at the point of loading in Russia.
The ban applies even if the oil is destined for countries such as China and India, which do not recognize the price ceiling, according to information monitored by the specialized energy platform.
Payment in UAE dirhams
The shift to payment in UAE dirhams comes as the State Bank of India is asking refiners looking to pay in dollars for Russian oil to provide a breakdown of oil, freight and insurance costs, allowing it to preview trading and avoid price caps being breached.
“The State Bank of India is very conservative in its approach,” one of the sources told Reuters, even though India does not adhere to a price cap mechanism and Western insurance and freight are not used on delivery. Indian refiners usually buy Russian oil from traders at a price that includes delivery to India.
And an invoice for such deals – seen by Reuters – showed that traders ask for the average price of crude, including the shipment of Russian Urals crude, and the document calculates the price of the goods in dollars and dirhams, as reported by the Business Standard website on February 4.
It should be noted that Indian refineries often buy Russian oil from trading companies in Dubai, including Everest Energy and Litasco, which is affiliated with the major Russian oil company, Lukoil.
And during the past month, the Undersecretary of the Indian Ministry of Oil for Oil Affairs, Pankaj Jain, stated that Indian companies do not face any problems in paying the price of Russian oil, because the recent measures taken by the West do not affect the trade settlement mechanism.
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