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India replaces U.S. dollars with dirhams in Russian oil trade

Originally published: Al Mayadeen on February 4, 2023 by Reuters (more by Al Mayadeen)  | (Posted Feb 08, 2023)

“Russia has become India’s largest oil supplier and significantly contributed to the country’s energy security.”

This is what Russian Ambassador to India Denis Alipov tersely stated while addressing the Indian Council of World Affairs (ICWA)-Russian Council Dialogue on Thursday.

Meanwhile, Indian refiners and dealers are anxious that they will no longer be able to settle trades in U.S. dollars, especially if the price of Russian oil climbs above a December price cap imposed by the Group of Seven nations and Australia.

As a result, traders are looking for other payment methods, which could actually prove to be helpful in Russia’s efforts to de-dollarize its economy in reaction to Western sanctions.

Previous attempts by Indian refiners to pay merchants for Russian crude in dirhams via Dubai banks failed, forcing them to revert to U.S. dollars.

However, India’s biggest bank, the State Bank of India (SBI), is now clearing these dirham transfers, according to Reuters, revealing details of previously unreported transactions.

It is worth noting that the G7 price cap forbids any Western entity, such as insurance and shipping service providers, from trading Russian oil if the purchase price is more than $60 per barrel at the loading point in Russia. This is true even if the oil is destined for countries such as China and India that do not recognize the cap.

The SBI also requested that refiners wishing to make dollar payments for Russian crude produce a breakdown of the costs of the oil, freight, and insurance, allowing it to verify trade and prevent breaking the cap.

Typically, Indian refiners purchase Russian crude from dealers at a price that includes delivery to India.

Indian refiners are buying Russian oil on a delivered basis to avoid any risks that may arise during shipment, and the calculated cost at the point of loading has so far been less than the price cap, Reuters reported, citing our sources with knowledge of the matter.

Indian refiners mostly purchase Russian crude from Dubai-based dealers such as Everest Energy and Litasco, a subsidiary of Russian oil company Lukoil.

Pankaj Jain, India’s oil secretary, stated last month that Indian companies are not having any difficulties paying for Russian oil because the new steps by the West have no effect on the trade settlement mechanism.

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