The Search For Petrodollar Alternatives

Nations that buy Russian oil and gas products are increasingly open to using local currenciesas a sanctions workaround.

Sanctions against Russia have inspired local currency-denominated deals in oil and natural gas products and services, as Russia and some of its clients sought workarounds.

Hence, India’s state-run Hindustan Petroleum agreed to purchase 2 million barrels of Russian Urals crude to be paid for in rupees instead of US dollars, Minister of Petroleum and Natural Gas Hardeep Puri told the upper house of Parliament on March 17. However, the ministry walked back any such deal approximately two weeks later.

In 2021, India sourced about 33 million barrels of crude—roughly 2% of its oil imports—from Russia, according to government statistics. India’s oil imports are projected to surpass $100 billion for the fiscal year that ends on March 31. A 2-million-barrel purchase would represent a drop in the bucket for the third-largest oil importer.

Meanwhile, Russia’s top crude exporter, Rosneft, had offered between a $20 to $25 per barrel discounts from spot prices, and had further sweetened the deal by subsuming freight and insurance costs. Bharat Petroleum is close to clinching a similar deal. Crude payments in rupees could be set off against receivables of Indian exporters from Russian entities by reviving the Soviet era “rupee-ruble trade.” Prime Minister Narendra Modi set up a multi-ministerial group to sort out such a payment mechanism after US and EU allies sanctioned Russian banks.

Iran, long under US, EU and UN sanctions for allegedly pursuing nuclear weapons, is also ready to accept payment for oil in rupees and rials. Indo-Iranian bilateral trade plunged to a wobbly $2 billion for the year ending March 31, from $17 billion in fiscal year 2019, according to the Iranian ambassador to India, Ali Chegeni.

It’s not just the Indian rupee. Saudi Arabia, the UAE and Nigeria, the other three big oil suppliers to India, are also open to local currencies—Saudi riyals, dirhams and nairas. Saudi Arabian oil exporters may accept payments in Chinese renminbi. China buys more than 25% of Saudi Arabia’s exported oil.