India, the world’s third-largest energy consumer, made its first-ever payment in rupees for oil bought from the United Arab Emirates (UAE), signaling what could be a strategic push to promote the local currency globally.
The move is part of India’s broader efforts to diversify oil suppliers, reduce transaction costs and establish the rupee as a viable trade settlement currency. The initiative is in line with the Reserve Bank of India’s July 11, 2022 move to allow importers to pay in rupees and exporters to accept payments in local currency.
Officials emphasized that internationalization is an ongoing process and there are currently no concrete goals.
In July, India formalized an agreement with the United Arab Emirates to offset the rupee, which resulted in Indian Oil Corporation (IOC) making payments for the purchase of one million barrels of oil from Abu Dhabi National Oil Company (Adnoc) in Indian rupees. In addition, some Russian oil imports were also settled in rupees.
With more than 85 percent of its oil needs dependent on imports, India has adopted a multi-pronged strategy that emphasizes sourcing from the most cost-effective suppliers, diversifying sources of supply and honoring international commitments. The nation’s move proved beneficial during a surge in Russian oil imports, saving billions of dollars.
Despite these efforts, India is seeking to explore trade settlements in rupees rather than dollars to streamline transactions by eliminating currency conversions. While there has been success in non-oil trade deals with specific countries, oil exporters have generally been hesitant to accept the rupee, citing concerns about repatriation of funds and high transaction costs.
Speaking to a parliamentary standing committee, the oil ministry stressed that payments for oil could be made in Indian rupees, subject to suppliers complying with regulatory guidelines. The ministry added that there is not much international interest in making payments using the Indian rupee as suppliers fear repatriation of funds and high transaction costs.
In the financial year 2022-23 (April 2022 to March 2023), India spent $157.5 billion importing 232.7 million tonnes of oil. Key suppliers included Iraq, Saudi Arabia, Russia and the United Arab Emirates, with West Asia accounting for 58 percent of all supplies. Domestic supply covers less than 15 percent of demand.
