Yuan Payments for Import of Russian Oil: Implications
STORIES, ANALYSES, EXPERT VIEWS
In a surprising move, Indian companies have begun to pay for the import of Russian crude oil not in the dollar, nor even in the rupee or the rouble, but the Chinese currency, the yuan. At a time when there is considerable friction in relations between New Delhi and Beijing, the reasons for this move are hard to fathom, according to Abhijit Bhattacharyya (alumnus of the National Defence College, and the author of China in India). “After the considerable military, political and diplomatic turbulence, particularly in the last three years, the Indian policy transformation was unexpected…..”
Government’s advisory ignored
In March 2023 in fact, the government reportedly issued an advisory to banks, merchants and traders dealing with crude oil imported from Russia, to avoid making any payments in the Chinese currency, the yuan. India had obvious and valid reasons to do so, writes Bhattacharyya “as paying for Russia-India bilateral transactions in a third-party currency would in this case only help the yuan get broader and wider acceptance, and spur smaller and weaker economies to emulate India. The logic and reason of the small and weak economies taking a cue from India’s action certainly couldn’t have been faulted. If India, the fifth-largest economy in the world, allows its key adversary’s currency to be used for payments of imported crude oil from Russia, how could the smaller nations avoid doing it?”
But despite the government’s advisory, several private Indian companies, merchants and traders and at least one state-owned petroleum company ignored it, and started paying in Chinese yuan for imported Russian crude.
Moscow’s rigid reluctance to accept Indian rupees
It is another matter that Moscow’s rigid reluctance to accept Indian rupees for a bilateral India-Russia commercial transaction of crude oil perhaps encouraged the move. “This was totally not expected of a long-standing friend, whose ‘special relationship’ goes back over 50 years….. If the Indian establishment now loses confidence on Russia’s dependability, due mainly to Moscow’s insistence on yuan payments, it cannot really be faulted.
“Russia’s turnaround in this matter shows how power equations in Asia’s heartland have adversely affected New Delhi, albeit slowly and hopefully temporarily…”
Indian companies benefit, so does China
However, according to Bhattacharyya “the cheaper import bill due to yuan payments will considerably enhance Indian companies’ profit percentage when the same Russian imported petroleum products, refined by Delhi, are sent to the West by same Indian importers overnight turning into exporters!
“By paying in Chinese yuan, India may save its dollar reserves, but the imported Russian crude oil turns into a big bonanza for private company importer-turned-exporters. In the process India falls prey to Dragon’s designs to render Delhi weaker and feebler on the currency front.”
Implicit admission of unpredictability of a weak Indian rupee
India’s yuan payment for Moscow’s oil is also a “huge blow and an implicit admission of unpredictability of a weak Indian rupee.
“That’s not a good omen. The Indian rupee should have got recognition and wider confidence from market players to be accepted, at least by Russia for bilateral transactions and its neighbourhood. Last weekend’s agreement between India and the UAE on rupee-dirham trade may be the way to go!”
