India Expected To Reject Russian Demand To Pay For Oil In Chinese Yuan

Yves here. The Global Majority effort to move trade away from the dollar is already coming under stress. This is what happens when you have unbalanced bilateral trade: without a settlement currency, the net exporting party winds up with a lot of the net importers’ currency. Here Russia has already been complaining that it has more Indian rupees than it can use.

India is unwilling to acquire yuan to satisfy Russia demands. The amount used for oil transactions is large and India selling rupee to buy yuan would lower the rupee versus the yuan, something India presumably does not want. And with China having capital controls, there might even be liquidity issues.

Mind you, this is not a new problem. From Reuters in May:

India and Russia have suspended efforts to settle bilateral trade in rupees, after months of negotiations failed to convince Moscow to keep rupees in its coffers, two Indian government officials and a source with direct knowledge of the matter said.

This would be a major setback for Indian importers of cheap oil and coal from Russia who were awaiting a permanent rupee payment mechanism to help lower currency conversion costs.

With a high trade gap in favour of Russia, Moscow believes it will end up with an annual rupee surplus of over $40 billion if such a mechanism is worked out and feels rupee accumulation is ‘not desirable’, an Indian government official, who did not want to be named, told Reuters….

The rupee is not fully convertible. India’s share of global exports of goods also is just about 2% and these factors reduce the necessity for other countries to hold rupees.

By Tsvetana Paraskova, a writer for with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. Originally published at OilPrice

India’s government is expected to reject demands from Russian oil companies to pay for Russia’s crude oil imports in Chinese yuan, Indian officials told Bloomberg on Friday.

Russia and its companies need Chinese currency as Russian trade has become much more reliant on China after Putin’s invasion of Ukraine and the sanctions on Russia. Moscow has a lot of Indian rupees, but it can’t spend them all while it needs yuan. Russian firms have largely ditched dollar and euro payments due to the Western sanctions and the fact that Russia has been cut off from the SWIFT banking payment system.

Russian oil companies have been asking lately for payments in yuan, but the Indian government – which owns 70% of the refiners in the world’s third-largest crude oil importer – will not agree to these demands, according to Bloomberg’s sources.

Some crude cargoes from Russia to India have been recently delayed because the parties have failed to agree on the currency of the payment, sources at refiners told Bloomberg.

Earlier this week, unnamed Finance Ministry sources told Reuters that payment in Chinese currency of seven cargoes of Russian crude oil imported by state-run Indian oil refineries is being held up over the Indian government’s new-found hesitancy to accept this form of payment.

State-run Indian Oil Corporation has settled purchases in yuan previously, while Bharat Petroleum Corp and Hindustan Petroleum have not yet resorted to the Chinese currency, though direct Russian suppliers have requested this.

India has hiked imports of Russian crude in the past year due to the cheaper Russian supply compared to crudes from the Middle East.

Between April and September, the first half of India’s 2023/2024 fiscal year, Indian imports of Russian crude oil more than doubled to 1.76 million barrels per day (bpd) from 780,000 bpd in the same period of the 2022/2023 year, per vessel-tracking data cited by Reuters.

OPEC had a record-low share of India’s oil imports between April and September, as the world’s third-largest crude importer more than doubled purchases of Russian crude, according to industry and trade data compiled by Reuters.

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  1. leaf

    Why has India lagged behind in development compared to their East Asian neighbours? And what does Russia buy from India?

    1. digi_owl

      A former British colony where higher education is in English, resulting in a brain drain to USA and like?

    2. GramSci

      My question was the converse: What does India have to sell?

      The U.S. is India’s biggest export market. Apart from rice and gems, which China also seems to buy, things like packaged pharmaceuticals, i.e., subassemblies for U.S. corporations, seems to be where India continues to get the dollars it needs to buy oil.

      India would need to convert these exportable subassemblies to Russian and/or Chinese specifications in order to get out of the SWIFT/dollar system.

      Nagana happen soon, even with best efforts all around.

      1. Polar Socialist

        Drugs and related biologicals and chemicals are ~25% of the Indian exports to Russia, so it kinda has already happened.

        Oddly enough, India also exports a lot of coffee to Russia, while both are know as tee-drinking countries.

        1. GramSci

          Yeah, but on my quick Googling, as of 2022, Russia wasn’t even in the top twenty importers of Indian goods.

          So 25% of 1% of Indian exports?

    3. Louis Fyne

      arrested development by 1000 cuts, among other reasons… electricity reliability (historically), transport infrastructure, caste discrimination, debt serfdom.

      India is arguably too big to govern well. Imagine if mamy/most of the countries of Latin America formed ome nayion state…that is India. but with more diverse cultures, languages.

      argubably south India should be its own country at a minimum…along the borders of the old Vijayanagara empire

  2. The Rev Kev

    It seems that Modi’s India does not want to play their roll in the BRICS but have it all their own way. I guess that India wants a huge store of Rupees in Russia to force them to buy goods and services from India whereas the Russians want to see more currency swaps between Russia, India and China to encourage trade between all three and for them not to build up a huge store of Rupees that they cannot use up. Whether Russia plays hard ball or not, this might make some people in the EU nervous. So right now the EU is refusing, when they can, to buy Russian oil but will buy Indian oil – which is actually Russian oil shipped to India. So suppose that Russia tells India no more oil exports to India unless they are in Chinese Yuan and the Indians balk. Oil imports quickly decline to India from Russia but as a direct consequence, you would have a decline in oil shipped to the EU as they no longer have access to all that oil. For the Indians this would be like shooting their cash cow – and we all know how cows are sacred in India – but what it would mean for the EU would be less oil imports as the weather starts to go into winter. Maybe the EU might have to tell India just to buy some damn Yuan and keep everybody happy.

    1. Yves Smith Post author

      A currency swap solves nothing. They are only for short term imbalances or liquidity issues.

      As I said, even if India could buy enough yuan (questionable), it would weaken the rupee. That would hurt every party in India that borrows in foreign currencies or buys commodities or foreign supplies.

      1. John k

        Seems russia could shift the oil flow to China, which would better balance Russia-China trade, and China could sell any surplus to eu, granted longer shipping routes… or, more russian oil to China could replace Persian gulf oil, and that supply could then go to eu? Presumably there are Chinese corps that would like to earn the markups presently going to Indian corps.
        I also wonder how long it will take to get Venezuelan heavy oil flowing again after so many years of rust, meaning the west may need Russian heavy for at least the short term, there will be growing shortages of diesel given so much of us production is super light fracked oil.

  3. Bill Malcolm

    So far since deep Western sanctions began after the SMO initialism, Russia has essentially gifted oil to India, which has promptly flogged off the excess to Europe and elsewhere for “real” money. Indeed, the question is, what can Russia buy in the way of useful stuff from India for all the rupees it has amassed? Can’t see this form of Russian foreign aid lasting much longer.

    The only things Indian I purchase are spices, Assam tea, gherkins and relish. And likely some pharmaceuticals rebranded or used as base material by some big Western pharma outfit. Other than that, it seems to uneducated me that India has essentially nothing much of use to export. The Ford Ecosport mini SUV made in Chennai India has been sold for a while in both North America and Europe, but gained the reputation of being the worst vehicle on the Western market — Ford started making them in Romania for Europe when it slightly “refreshed” the current gawky model. The North American version was unchanged and still made in Chennai. And of course, if you play cricket, Mr Modi’s personal delight and in which sporting arena he apparently has solid financial interests, then the decent-priced equipment comes from India.

    The article is written by Binoy Kampmark, an Australian former associate of Assange before that man was terminally arrested. Kampmark never gets any play at NC, but puts out daily commentary on the state of affairs in Australia and the Indo-Pacific region. With occasional forays on other world news. Mainstream he is not, but neither is he shouty.

    Here’s a summary of India’s main exports for 2022. They amount to only about $250 per capita.

    1. vao

      Other than that, it seems to uneducated me that India has essentially nothing much of use to export.

      Services, especially IT services (but Russia has top-notch IT people), call centers (but they speak English, not Russian), and, at an early stage, finance. Also processed diamonds.

    2. Mikel

      According to M. Brenner in the article “US Declares War’ (in today’s NC links), India posseses enough to put them potentially in the middle of the USA’s cross-fire:
      “U.S. foreign policy has set the country on a course destined to lead to a world of rivalry, strife and conflict into the foreseeable future. Washington has declared “war” on China, on Russia, on whomever partners with them.

      That “war” is comprehensive — diplomatic, financial, commercial, technological, cultural, ideological. It implicitly fuses a presumed great power rivalry for dominance with a clash of civilizations: the U.S.-led West against the civilizational states of China, Russia and potentially India.

    3. Paul Jurczak

      The only things Indian I purchase are spices, Assam tea, gherkins and relish. And likely some pharmaceuticals rebranded or used as base material by some big Western pharma outfit. Other than that, it seems to uneducated me that India has essentially nothing much of use to export.

      You are also indirectly purchasing first level customer service in banking, telco, IT, etc.

  4. Louis Fyne


    india has lots of individually-owned gold.

    and this is apocryphal….allegedly many of the temples are some of the riches orgs. in India given the vast amounts of donations accumulated over the years.

  5. Gregory Etchason

    My bet is this is a move to get India off the fence with BRICS. India will need to get in line and distance from the US and this currency snafu goes away.

    1. Yves Smith Post author

      I don’t see your logic. Russia is refusing non-dollar, non-Euro bilateral trade with India and is trying to force India to use a third currency, which is subject to capital controls and therefore likely not very liquid for big size transactions like oil trades.

  6. Joe Well

    One of the most challenging economics concepts NC has introduced me to (as an extreme non-economist): a currency is not just a unit of account, it is the tendrils of an entire national banking system. I still can’t get my head around it intuitively.

    It is counterintuitive since we consumers and small business people live in the illusion of a “Flat World” where you can just make an online exchange of 100 US dollars to whatever other currency almost instantly with a minor commission.

    1. JohnnyGL

      Yep, there’s a whole set of balancing problems out there that (presuming you’re american) most Americans don’t have to wrestle with.

      Nakedcap makes your brain hurt…in a good way! :)

      1. Joe Well

        I don’t think being American has anything to do with it, as long as you have access to USD. The challenges arise in the other currencies’ financial systems.

  7. Will

    Would be very funny if a European country started encouraging its national companies to demand payment in Yuan for their exports to China, so that the Yuan could be used to (pre?) pay for imported refined products from India, so that the Indian refiner can pay in Yuan for the crude oil exported by Russia… so that Russia can pay for imports from China.

    Extra funny because all of the foregoing would have been kicked off by the US trying to isolate China and Russia in order to maintain its own hegemonic position.

    1. Oh

      That’s exactly what I was thinking.
      I have a feeling that Russia is sick of India’s complex role – buying Russian oil w/ rupees and selling refined products to Europe to get euros/dollars and using that to buy weapons from France and the US. In addition, they are sick of India playing a spoiler role in BRICS.
      Mod’s policy of not picking a side is bearing (sour) fruit.

      1. Susan the other

        I’d guess that Russia and China are thinking more about a closed circle of trade with India. Solve some of their looming “civilizational” problems, some, many of them mutually shared like water pollution. Think about all of the pollution in the Ganges alone. India is in a good position with smart people and plenty of fuel to manufacture anti pollution technologies that both India and China will use, maybe Russia as well. Russia and China could set up factories in India. Air pollution is a huge problem in China, so India could focus on solving that overwhelming situation, etc. It’s not like consumerist-free-market crap. It’s very necessary technology. The sooner the better.

  8. David in Friday Harbor

    Could the Russian demand for payment in Yuan rather than Rupees simply be a “diplomatic” way of clamping down on the laundering of embargoed Russian oil through Indian refineries by the EU? If the EU is sanctioned by OPEC and has to beg for more American oil and gas this could be highly destabilizing to the NATO alliance.

    I’m guessing that once Russia and China amp-up their Belt-and-Road connections (discussed by Xi and Putin in Beijing this week), China can absorb enough Russian oil and gas to keep the Russian economy going indefinitely, settled in Yuan that will buy plenty of military hardware and consumer goods to keep the Russian public happy.

    1. Will

      Gilbert Doctorow relayed these interesting tidbits from Russian TV regarding China-Russia economic connections.

      Another valuable data point aired on Sixty Minutes was that grain sales to China are expected to reach 70 million tons, which would represent almost 50% of the entire Russian harvest this year. And Alexei Miller, head of Gazprom, said that China is on course to buy as much natural gas annually as Russia was previously exporting to Europe.

      In the linked article, Doctorow says that 90% of all bilateral trade between Russia and China is now settled in national currencies, with the majority being Yuan.

      I don’t know what the volume of trade between the two was before Ukraine-related sanctions, but I’d guess these numbers still represent big jumps. Perhaps Belt-and-Road connections have already been completed.

  9. J_Schneider

    Quick look at Trading Economics tells the story. Negative Current a/c, FDI slowdown, Capital flows around zero, quickly growing Foreign debt. If India accepts to trade in yuan it would have to earn them or borrow them. Modi-economics not going in the right direction. Keeping Russian oil companies as hostage is a good strategy but oil giants are not stupid forever. Probable outcome means no RUS oil for India, IND refineries running at lower rates and less refined products exports to Europe. India will have to borrow more $ to buy Saudi oil and RUS will have to export more refined products through third countries. Easy to say, harder to do. There is probably no excess of refining capacity in RUS. That means Europe will have less diesel.

  10. Beachwalker

    India, by some accounts, has a wealth disparity problem that dwarfs even America’s. That probably is a significant factor in what being discussed here.

  11. JonnyJames

    As we see from this post, and other great info on NC, de-dollarization is a tricky business and that there is a lot of confusion about it. The accounting complications of bilateral currency swaps alone would give me an endless headache. How many countries and currencies? How many trades? What is the BoP capital/current accounts of each bilateral relationship? So many variables and complications, but I guess some hotshot accounting experts can sort it out?

    Also, I have learned a lot, and still learning, from NC’s regular posting of Michael Hudson and Radhika Desai discussing the necessity of a “Bancor” (JM Keynes) currency unit for BoP settlements only. It could be something similar to the Bancor suggested at Bretton Woods, but it cannot be a national currency. I’m still trying to wrap my head around what could constitute such an accounting unit, A “basket of currencies”, gold, commodities or a combination?

    One problem is that there isn’t yet any international consensus on how to build the institutional structures to support a new BoP currency unit, let alone such structures. This would have to be agreed on by the members states and ratified into law. Then there are the power relationships of the different member countries. It looks like that could take many years to work out.

      1. Piotr Berman

        But if Indian companies can get dollars, they can get another non-rupee currency too. I though that using rupees that are later deposited in India was good for rupee exchange rate and terms of trade, but exchange controls became excessive for Russia.

        1. Yves Smith Post author

          I don’t understand what you mean here.

          The rupees are not deposited in India. They are deposited in Russia, or effectively in Russia, because Russia is a net exporter to India.

  12. timbers

    My prediction is that India will follow the money. If it becomes more profitable for her to tilt back towards the West, that is what she will do. My guess is she made enormous profit selling Russian oil to the West. If that ends, India might be up for grabs. I have worked with many Indians. They say America is the best nation. The best to live and work. Their matto is “We don’t cause trouble.” They would consider Russia or China a step down or “slumming.” They also have a low opinion of returning to India. They most definitely don’t want that at all.

    1. SocalJimObjects

      I too have worked with many Indians, not just in the States but in Singapore as well. To many Indians, America is indeed still the best nation …. for making money, and that’s it, they want no part of America’s culture. I would suggest venturing to the TeamBlind website where many Indians would post their experiences working and living in America. There have been quite a few posts about people making the move back to India because they feel lonely in the States. Things have changed since the beginning of this century. I remember back then interning at Cisco Systems where pretty much all my colleagues were Indian and singing praises of the tech sector and obviously the United States of America.

      Also, in the next economic blow up, I think many Indians, whether they want it or not will be forced to return to India. I am willing to bet Americans will demand quite aggressively then that jobs should go to Americans first, second and third.

      Also, just in case somebody has not been paying attention, India had changed their method of calculating their GDP to make it look better. IMHO, India is simply jealous of their better performing neighbor. They think Hinduism is some kind of magic sauce that will fix everything, but as my very close Indian friend used to say: “The problem with India is the people.”

  13. Jake Dee

    So, India must find something that the Russians want, and in large quantities to ensure that “The Spice” still flows, what could that be?
    I suggest Labor.
    People is one thing that India has massive quantities of. Getting foreign skilled workers integrated into local military production during war time is going to be very difficult, but there are plenty of other things that they could be doing around the country that will be both useful and relieve some of the supply crunch of Russian workers. Builders, carpenters, bricklayers, masons, plumbers, electricians, truck drivers, welders etc. etc. should have plenty of projects to work on, especially in and around the second and third tier Russian towns in the interior.
    No doubt there will be plenty of problems, cultural differences, language gaps, integrating different work standards, but nothing that can’t be solved with time, effort and political will. Plus, the currency issue should make paying foreign workers in rupees very attractive.
    The only other thing I can think of for Russians to buy a lot more of in rupees would be cultural products and tourism, not entirely useless but hardly a top priority during war time. But veterans and families getting a bonus tropical holiday in Goa or Agra is not a stupid idea.

  14. James T.

    The currency exchange is difficult but India probably should pivot back to the West and see how well that works out. In time, countries that want to be independent of sanctions and control of their economy will find a common exchange tool to make the system work. The US dollar is not the answer for India nor anyone else wanting stability and freedom. In the short-term the US will win but my guess is that this pivot away from the dollar will happen much faster than most predict. Always great information and reasonable open discussion on NC.

    1. Yves Smith Post author

      India has not pivoted away from the West. It was trying to play nice with both sides, which is a different posture.

      These are India’s biggest export destinations, in order:

      US, UAE, Netherlands, China, Bangladesh, Singapore, Brazil, UK, Saudi Arabia, Indonesia, Germany, Hong Kong

      India is not going to sacrifice its relationship with the US any time soon.

  15. Revelo

    The problem is not lack of settlement currency. The problem is India doesn’t export things the world wants, so they can’t acquire rubles, they can’t acquire yuan, they can’t acquire any valuable currency. Hence the concern about devaluation. When you import but don’t export enough, you need devaluation.

    Russia could use a billion drones right now. So let the Indians get cracking on building a drone factory and cranking them out. India has plenty of cheap labor and there should be some brainpower somewhere in that huge population, so no reason they can’t produce valuable things like drones.

    India is unmanageable because true democracy is unmanageable, especially in poor countries. What works is an enlightened meritocracy/oligarchy, which is what Singapore had while developing. But the elite in India are anything but enlightened and the oligarchy is not meritocratic. Furthermore, India has tied itself to the declining USA/Anglo world, it is in opposition to the rising Chinese and Muslim worlds, it has climate change issues, the caste system is a monstrosity, etc. Only a matter of time before the whole place implodes and hundreds of millions die.

    Bottom line: Russia should tell India to take a hike. Only reason to export oil/gas is to buy things Russia needs to import. So export to China only.

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