New Delhi: India has initiated a historic shift by opting to pay the United Arab Emirates (UAE) in rupees for crude oil purchases. This strategic move marks a departure from the traditional reliance on the petrodollar and signals India's intent to elevate the global standing of its currency.
The Reserve Bank of India (RBI), on July 11, 2022, paved the way for importers to settle payments in rupees and allowed exporters to receive payments in the local currency. This move aligns with India's broader plan to establish similar arrangements with other oil suppliers, gradually promoting the internationalization of the rupee.
While officials emphasize a gradual process with no specific targets, the recent formalized agreement with the UAE has set the precedent.
Indian Oil Corporation (IOC) took the lead on July 11, 2022, making history by purchasing one million barrels of crude oil from the Abu Dhabi National Oil Company (ADNOC) and settling the transaction in Indian rupees. This milestone deal signifies a shift in the dynamics of global oil trade.
The move is particularly significant for India, which relies on imports for over 85 per cent of its oil needs. By introducing a rupee-based payment system, India aims to insulate its economy from potential global monetary shocks, reducing dependence on large-scale dollar payments.
However, not without challenges, officials caution that settling deals in rupees may face limitations, especially for transactions involving substantial amounts. While the Reserve Bank of India has implemented measures to prevent increased costs or harm to businesses, concerns arise regarding the feasibility of handling transactions for crude oil ships worth millions of dollars.