India begins paying for Russian oil in yuan following new agreements with China.

247 - In a new development in trade relations between India and China, Russian oil traders have begun requesting that Indian state-owned refineries pay in yuan, taking advantage of the recent rapprochement between the two countries. The shift, observed by sources close to the negotiations, comes at a time of increasing economic interdependence, while the effects of Western sanctions on Russia continue to shape the global energy market.

According to Reuters, India's largest state-owned refiner, the Indian Oil Corporation (IOC), recently made payments in yuan for two to three shipments of Russian crude oil. Sources reveal that this move was made possible by a more favorable environment for transactions with China, after the Indian government demonstrated some flexibility in bilateral relations with Beijing. IOC, however, did not immediately respond to Reuters' request for comment.

The practice of using alternative currencies to the dollar, such as the yuan and the UAE dirham, has intensified since Western sanctions against Russia following the invasion of Ukraine in 2022. In 2023, Indian state-owned refineries had made some payments in yuan, but halted this flow due to pressure from the Indian government, which was facing a period of tension with Beijing. However, private refineries continued to operate with the Chinese currency, highlighting the disparity between state-owned and private companies in the sector.

Now, oil traders are seeking to further simplify the payment process by eliminating the step of converting dirhams or dollars into yuan, which previously increased transaction costs. Furthermore, the change also aims to ensure compliance with the price ceiling imposed by the European Union on Russian oil, allowing payments to continue to be made in yuan while remaining within global price parameters.

India has become the largest importer of Russian oil since Western sanctions prevented many countries from purchasing oil from Russia. The introduction of payment in yuan will broaden purchasing options for Indian state-owned refineries, as some oil traders refuse other currencies for transactions.

Recently, relations between India and China have warmed, with the resumption of direct flights between the two countries after more than five years of interruption. In September, Indian Prime Minister Narendra Modi visited China for the first time in seven years, participating in a meeting of the regional security bloc of the Shanghai Cooperation Organisation (SCO). This move signals a possible strengthening of collaboration between the two Asian giants, which could have significant impacts on global trade dynamics.

In a comment on social media, independent journalist Ben Norton, editor of Geopolitical Economy ReportNorton highlighted an interesting point about the ongoing "dollarization." According to him, Russia initially considered accepting the Indian rupee as payment for oil, but soon realized that this option would not be practical, as the country cannot use the currency for many international transactions. "Russia has been selling oil at a discount to India's state-owned refinery, and now India is paying with Chinese yuan," Norton stated. He believes this movement reflects the growing distancing of the dollar from international negotiations, a phenomenon that gains strength as the geopolitical landscape transforms and new currencies are adopted for commercial transactions.