Indian Oil Corp, a state-owned oil company, has been experiencing delayed shipments of Russian Sokol grade crude oil due to payment issues. This is because India prefers to make payments in rupees, but Russia is unwilling to accept the currency. Additionally, the Rosneft unit selling the oil has been unable to open a bank account in the United Arab Emirates to receive payments in dirham.
As a result, six cargoes of Sokol oil that were supposed to be delivered to Indian Oil Corp from late November to December have been delayed and are currently lingering at sea around India and Sri Lanka.
These payment issues highlight the challenges that are arising in international trade with Russia amidst sweeping sanctions over its invasion of Ukraine. India has emerged as a major buyer of Russian oil following Western sanctions against Moscow, restricting dollar trade with Russia.
Earlier this year, India insisted on settling trades in rupees in order to avoid secondary sanctions and concerns about acquiring rubles at a fair rate on the open market. However, the Indian rupee is not fully convertible, so Russia was left with billions of rupees in Indian banks, which India encourages to be spent within the country.
To mitigate its currency risks and get around the rupee conundrum, Russian officials and oil executives have been pushing Indian buyers to pay them in Chinese yuan. However, India is increasingly uncomfortable with yuan trade due to currency conversion charges and geopolitical rivalry with China.
Another potential currency Russia could use for trading with India is the UAE dirham. But the UAE is increasing its oversight of Russian companies, further complicating the issue.
Overall, the delayed shipments of Sokol oil to Indian Oil Corp underscore the impact of international sanctions and the challenges of cross-border payments in trade with Russia. Russia’s economy has been rapidly restructuring to cope with these challenges, though the issues persist.