India rejected demands Russian oil companies for payment in yuan amid tension with China

India has rejected the Russian oil companies’ request for payment in yuan, a move that reflects ongoing tensions with China. According to a report from Bloomberg, several Russian oil suppliers have asked India to conduct transactions in Chinese currency. However, India’s Prime Minister Narendra Modi’s government has turned down this request. Indian Oil Corp, the largest state-owned refiner, had previously made payments in yuan for Russian crude, but the Modi government has since put restrictions on such transactions. Since around 70% of India’s refiners are government-owned, they must adhere to payment instructions from the Ministry of Finance, which includes not using the yuan.


Typically, Indian refiners use dirhams (the UAE currency), US dollars, and, in small amounts, rupees to pay for Russian oil imports. This is especially the case when oil prices exceed the $60 per barrel cap imposed by the US and its allies on Russian oil. Although the yuan is occasionally used in smaller transactions, Russian oil suppliers are now requesting it to be the primary currency for their oil trade with India. According to Bloomberg, Russia’s demand for yuan has seen significant growth over the past year, reflecting an increasing reliance on China for imports.

Russian businesses have been increasingly settling their trade in yuan, with the Chinese currency replacing the dollar as the most traded currency in Russia this year. An executive from an Indian oil refiner told Bloomberg that payment for approximately four to five cargoes had recently been delayed due to disputes over the choice of currency for the transactions. India’s reluctance to engage in transactions using the yuan highlights the complex challenge it faces in balancing its relationships with Russia, a critical economic partner, and China, a geopolitical rival. Russia has ascended as India’s primary crude oil supplier, accounting for nearly half of the country’s total oil imports.

Concurrently, India’s relations with China remain strained due to ongoing border disputes. Promoting the yuan at the rupee’s expense also hampers India’s own efforts to internationalize its currency. Russia was India’s largest oil supplier, with imports valued at $4.15 billion. For the month, India’s overall oil import bill increased by 28.27% to $11.49 billion from the previous figure of $8.96 billion in July. In August of this year, imports from Iraq and Saudi Arabia were valued at $2.33 billion and $2.07 billion, respectively.

Over the past 20 months, Russia has taken the lead as India’s primary oil supplier, offering discounted oil amid Western sanctions. While in the fiscal year 2022, Russian oil represented just 2% of India’s total oil imports, it now makes up roughly one-fourth of the 235.52 million tonnes of crude oil imported by India in FY23. Russia has accumulated billions of rupees in assets due to a substantial trade surplus with India, but converting and utilizing these funds has proven challenging. The rupee is not fully convertible internationally, which complicates its use in global trade. In May of this year, Russian Foreign Minister Sergei Lavrov acknowledged the “problem” of accumulating rupees, and discussions have been underway to determine how to convert these funds into another currency.