NEW DELHI: India has made its first-ever payment in rupees for crude oil obtained from the UAE, marking a significant move in the country’s initiative to promote the global use of its local currency. Officials have emphasized that this groundbreaking step is part of a broader strategy to explore similar deals with other oil suppliers, Indian media reported.
The initiative comes as India, the world’s third-largest energy consumer, pursues a three-pronged strategy to address its oil needs. This strategy includes purchasing from the most cost-effective sources, diversifying the supply chain, and ensuring compliance with international obligations, such as price caps, particularly in the context of Russian oil.
With more than 85% of India’s oil needs dependent on imports, the country’s focus on sourcing from the cheapest available suppliers is driven by the goal of meeting demand efficiently. The move to make rupee payments is seen as a step toward reducing dependence on traditional currencies in global transactions.
India’s strategy, aimed at saving billions of dollars by sourcing Russian oil post-Ukraine war, involves settling trade in rupees rather than dollars. The move aims to reduce transaction costs by eliminating the need for dollar conversions. In July, India formalized an agreement with the UAE for rupee settlement, and subsequently, Indian Oil Corporation (IOC) made payments for the purchase of a million barrels of crude oil from Abu Dhabi National Oil Company (ADNOC) in Indian rupees.
Traditionally, the default payment currency for crude oil imports has been the US dollar, offering liquidity and lower hedging costs. However, to enhance the rupee’s role in cross-border payments, the Reserve Bank of India has granted permission to over a dozen banks to settle trades in rupees with 18 countries since last year.
