India has been the largest buyer of Russian oil since the invasion of Ukraine, but in less than two years, Russia and India have had some disagreements over settlements.
Some time ago, Indian Foreign Minister S Jaishankar also personally went to Russia, but the Russian side did not give India face, and soon after Jaishankar left, the Russian side issued a new directive to its own oil tanker.
(Russian President Vladimir Putin and Indian Prime Minister Narendra Modi)
In the past two months, Western media have continued to report that the Russian oil tanker originally planned to sail to the Indian port of Wadenal has been docked in southern Sri Lanka for a long time, and nearly 5 million barrels of Russian oil on board cannot be unloaded. However, neither Russia nor India responded to this news. It was not until Indian Foreign Minister S Jaishankar concluded his visit to Russia that Russia and India took new action on how to resolve this issue.
A few days ago, Russian media said that due to the tightening of sanctions and the settlement problem can not be resolved, six Russian oil tankers will not be able to dock at Indian ports to complete delivery, and some of the current ships have left India to the east, and two of them said that they may be rerouted to China.
In response to this news, the Indian side also immediately responded and directly put the blame on Russia. The Indian side said that the reason why the delivery could not be made was because the crude oil company in the Russian Far East did not open a bank account in the UAE as previously agreed, resulting in Indian buyers not being able to pay in UAE currency.
In fact, in general, the two countries could not agree on the settlement issue.
In fact, when trading with India before, the Russian side had told the Indian side in advance, saying that the Russian side would not accept trade between Russia and India except for RMB, and if the Indian side could not agree on this point, then the Russian side could only let the oil tanker that originally sailed to India change direction. It can be seen from this that the Russian side greeted India in advance, not to mention that now the Russian oil tanker has turned around and gone back, and it is the Russian side that has suffered losses. Therefore, in this matter, we cannot completely listen to the words of the Indian side.
(INR)
And for Russia, there is also a reason for this.
International trade is essentially a calculated game, and every transaction reflects the delicate consideration of interests and costs between countries. Therefore, no matter which country it is, it is not willing to make a loss-making transaction, and now the Russian side would rather let the oil tanker turn around and return to China than compromise on the use of India's settlement plan, which shows that with the Indian plan, the Russian side will suffer greater losses.
First of all, the use of the UAE currency can only be said to be a big test of the Indian side to the Russian side, and its real purpose is to sell its own rupee. In the current international trade settlement system, the UAE currency, like the Indian rupee, is not the main currency, so if Russia can accept the UAE currency this time, then the next time India will card the Russian oil tanker, the Russian side is expected to accept the Indian rupee.
Two years ago, when Russia and India first began to trade in oil, the two sides discussed the issue of settlement in their own currencies. At that time, the Russian side also recognized the rupee, but after some investigation and measurement, it was found that it was not cost-effective to receive Indian rupees, so in the past year, none of India's oil import orders were settled in rupees.
Second, whether it is the Indian rupee or the UAE's Emirates dirham, the frequency of participation in international transactions is much lower than that of the US dollar or the renminbi, and its liquidity and recognition are relatively small, which has a series of effects in actual business operations. Especially for large economies like Russia, the use of rupees or dirhams means that they need to enter a market environment with more volatile exchange rates.
(Russian oil tanker)
Exchange rate fluctuations are a major risk factor in trade. It can affect the profit margins of a business in a short period of time, and may even upend the financial structure of the entire transaction. Therefore, if they want to reduce risks, Russian companies have to adopt various financial instruments or strategies to hedge exchange rate risks, which increases the cost and complexity of transactions.
In addition, rupees and dirhams are also relatively niche in the global financial markets and are difficult to be widely accepted. This means that after completing the transaction, Russian companies will need to convert the currency they receive into a more common currency in order to facilitate seamless integration in the global market. This conversion process not only involves additional transaction fees, but can also affect the exchange rate due to the supply and demand of the currency, resulting in potential financial losses.
However, if Russia receives the renminbi directly, these problems will no longer exist, and China is still Russia's main trading partner, and the trade volume between the two countries is rising, and the large use of the renminbi in international trade will also promote trade facilitation between China and Russia. Therefore, the first choice of RMB in settlement is the most cost-effective for the Russian side.
(Oil refinery in Mumbai, India)
According to the data, India's oil imports from Russia reached an all-time high in May last year, and then began to decline, plummeting to the lowest level in a year in December. It can be seen that if the two countries cannot reach an agreement on the settlement issue, then the bilateral trade between Russia and India will be affected to a great extent.
In short, the Indian side should also understand that the process of internationalization of the rupee cannot be achieved overnight, and if it only takes into account its immediate interests and causes cracks in Russian-Indian relations, it will be like picking up sesame seeds and losing watermelons for India.