Indian Refiners Pay Traders In UAE Dirhams For Russian Oil Trading

Indian Refiners are purchasing oil from Russia via some Dubai based traders and they’re making payment in dirhams instead of US dollars.

Indian Refiners Purchases Russian Oil Via Dubai-Based Traders

According to four sources with information on the situation, Indian refiners have started using United Arab Emirates dirhams rather than US dollars to pay for the majority of the Russian oil they buy from brokers located in Dubai.

India does not recognise the Western sanctions on Moscow, and buying Russian oil may not infringe on them in any case, but banks and other financial institutions are cautious while clearing payments to avoid unintentionally breaking any of the several penalties imposed against Russia after its invasion of Ukraine.

In particular, if the price of Russian crude increases above a quota imposed by the Group of Seven countries and Australia in December, Indian refiners and dealers may not be capable of continuing to settle trades in dollars.

Due to this, traders are looking for alternate payment methods, which may also help Russia in its efforts to de-dollarize its economy in reaction to Western sanctions.

Indian refiners had previously tried to pay traders for Russian crude in dirhams through Dubai banks, but those attempts had failed, forcing them to return to using dollars.

However, according to the sources who spoke to Reuters, India’s largest bank, the State Bank of India (SBI), is now processing these dirham payments, revealing information on transactions that had not previously been made public.

Requests for comment from the SBI, which has branches abroad, including the United States, were not answered.

Why Is Russian Oil Trading Being In UAE Dirhams Instead Of Dollars? (Opinion)

The Russian Oil trading in UAE dirhams is primarily due to concerns that the Russian conflict and US sanctions on Russian oil might cause problems in trading of the oil in US dollars. This could be the primary reason behind this trading.

The G7 price cap prohibits any Western company, such as the insurance and shipping service providers that underpin much of global trade, from involvement in trading Russian crude if the purchase price is above $60 a barrel at the loading point in Russia. 

That remains the case even if the oil is bound for countries such as China and India which do not recognise the cap.

The shift to dirham payments was also triggered by the SBI asking refiners looking to make dollar payments for Russian crude to provide a breakdown of the costs of the oil, freight and insurance, allowing it to vet trade and avoid violating the cap.

Some sources said Indian refiners are buying Russian oil on a delivered basis to mitigate any risks arising during shipping, and so far the calculated cost at the point of loading has been below the price cap.

Indian refiners mostly buy Russian crude from Dubai-based traders including Everest Energy and Litasco, a unit of Russian oil major Lukoil.

Everest Energy and Litasco did not respond to requests for comment. India’s oil secretary Pankaj Jain last month said Indian companies were not facing any problems in paying for Russian oil as the latest actions by the West do not impact the trade settlement mechanism.