First Rupee Payment For Oil To UAE: India Looks For More Deals And No Targets, Say Officials

Syllabus: GS-III

Source: Indian Express

Subject: International Relations

Topic: Important International institution agreements involving India and/or affecting India’s interests.

Issue: First Rupee Payment for Oil.

Context: India, a major energy consumer, has executed rupee settlements for crude oil purchases from the UAE, advancing its strategy to diversify sources and explore non-dollar transactions.

Synopsis: 

1. Rupee Payments for Oil Imports:
   • Indian Oil Corporation (IOC) successfully conducts a significant rupee payment for crude oil from Abu Dhabi National Oil Company (ADNOC).
2. Strategic Sourcing Approach:
   • India, highly dependent on oil imports (over 85%), strategically sources from the most cost-effective suppliers, diversifies its supply chain and ensures compliance with international obligations.
3. Rupee’s Global Role:
   • To promote the rupee in cross-border transactions, the Reserve Bank of India facilitates rupee settlements with banks across multiple countries.
   • India urges major oil-exporting nations like the UAE and Saudi Arabia to consider the Indian currency for trade settlements.
   • India contemplates extending similar arrangements with other nations, aiming to increase rupee-based transactions for economic resilience.

Conclusion:

India’s adoption of rupee settlements for oil trades signifies a strategic move to reduce dollar dependency, cut costs, and contribute to the internationalization of its currency. Despite challenges, this aligns with India’s broader goals of securing cost-effective energy supplies and strengthening economic resilience globally.

Similar Agreements:

• India actively pursues replicating its successful rupee settlement model with various countries, aiming to boost exports, enhance the global role of the Indian rupee, and reduce dependence on the dollar.
•  Following the real-time link success with Singapore, ongoing discussions with France and Japan exemplify India’s commitment to extending these arrangements.
• Efforts to finalize a similar arrangement with Russia faced hurdles. Moscow expressed reluctance to hold Indian rupees, citing concerns about accumulating an annual surplus exceeding $40 billion due to limited convertibility.
• The Reserve Bank of India’s proactive approach is evident in permitting banks to settle trade in Indian rupees with 18 countries last year, showcasing the nation’s commitment to fostering economic cooperation through currency agreements.