India’s stance on the currency for oil trade with Russia has gained attention as it navigates the complex web of international relations.
Russian oil companies have sought payment in yuan, China’s currency, from India, but the Indian government, led by Prime Minister Narendra Modi, has declined this request. This decision has far-reaching implications for the balance of economic and geopolitical interests in the region.
Russian Oil Suppliers’ Preference For Yuan
Russian oil suppliers’ increasing demand for yuan as the primary currency for oil transactions stems from the growing economic ties between Russia and China. The yuan has gained prominence in Russia, even surpassing the US dollar in trade volume. Russia’s push for yuan payments is reflective of its reliance on China for imports.
Russia and China have been strengthening their economic ties over the years, fostering a closer partnership in various sectors. This economic collaboration includes energy, trade, and investments. In particular, energy cooperation has become a cornerstone of their relationship.
As China’s energy demands continue to rise, Russia has emerged as a significant supplier of oil and natural gas to meet these needs. This has necessitated a more efficient and convenient payment mechanism between the two nations, which led to the preference for the yuan.
China has been actively promoting the international use of its currency, and this effort has gained traction in various countries, including Russia.
The yuan is now used for international trade, investments, and financing. As a result, businesses and governments alike have found it more convenient and advantageous to adopt the yuan as a means of conducting transactions.
Russia’s increasing reliance on China for imports has further solidified the preference for yuan payments. This reliance can be attributed to both geopolitical and economic considerations. Geopolitically, Russia has sought to diversify its trading partners due to sanctions and strained relations with the West.
Economically, China represents a vast and growing market for Russian goods, and the use of the yuan facilitates trade, ensuring that transactions align with the interests of both countries.
This preference has created challenges in India, where payment for oil imports has traditionally been in dirhams, US dollars, or, in some cases, rupees. This shift towards yuan transactions has led to disputes, delaying payments and highlighting the evolving dynamics of international trade.
India’s Dilemma: Balancing Allies And Rivals
India’s reluctance to embrace yuan payments underscores the delicate balancing act it faces between Russia, a vital economic ally, and China, a geopolitical rival. Russia has become India’s leading crude oil supplier, accounting for nearly half of its oil imports.
Simultaneously, India’s relationship with China remains strained due to ongoing border disputes. Popularizing the yuan at the expense of the rupee also hampers India’s efforts to internationalize its currency. This balancing act poses diplomatic and economic challenges for India.
Russia’s Dominance As India’s Top Oil Supplier
Russia has emerged as India’s top oil supplier in the past 20 months, offering discounted oil amid Western sanctions. While Russian oil constituted only 2% of India’s total oil imports in FY22, it surged to around one-fourth in FY23.
This shift is due to the economic incentives offered by Russia and the challenges of using rupees in global trade. Russia has accumulated significant rupee assets but faces hurdles in utilizing them due to the limited convertibility of the rupee on the international stage.
India’s rejection of yuan payments for Russian oil sheds light on the intricate relationships among economic and geopolitical forces. It reflects the country’s struggle to navigate the tensions between two significant partners, Russia and China, and the broader challenges of currency preferences in international trade.
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