Indian refiners making yuan payments for Russian Dollar

Subject: Economy

Section: External Sector

Context: Indian refiners have begun paying for some oil imports from Russia in Chinese yuan

Key Points:

Western sanctions decided by the G7 countries prohibit purchase of Russian oil above $60 per barrel. With the price for Russian crude rising above the $60 limit, it is likely to face payment problems.
Russia and its customers need to find alternatives to the dollar for settling payments. For India payment is Rupee is not agreeable to Russia as it is already struggling with over $2 billion in INR reserves received on its export of defence purchases to India.
In this situation it is being reported that IOC and other companies are making payments in Yuan. It is noteworthy that India has not endorsed the sanctions by western countries, but Indian banks are not comfortable in undertaking any trade related payments to sanctioned entities.

Rise of Yuan: role as petro-currency

U.S. dollar has long been the main global oil currency, including for purchases by India, but now the yuan is playing an increasingly important role in Russia’s financial system because Moscow has been frozen out of the dollar and euro financial networks by international sanctions.
China has also shifted to the yuan for most of its energy imports from Russia, which overtook Saudi Arabia to become China’s top crude supplier in the first quarter this year.
The rise in yuan payments has given a boost to Beijing’s efforts to internationalise its currency, with Chinese banks promoting its use specifically for Russian oil trade.
There has been a talk of the emergence of a petroyuan to challenge the petrodollar, but it faces the challenge of Gulf oil producers not being interested in selling crude in China’s currency.