India’s initiative to use the rupee for crude oil imports faces hurdles as suppliers express worries about fund repatriation and transaction costs. Despite allowing importers to pay in rupees, the Reserve Bank of India’s move has seen limited success, with oil exporters remaining hesitant.
During FY 2022-23, no crude oil imports by oil PSUs were settled in Indian rupees. Concerns raised by suppliers, including UAE’s ADNOC, revolve around fund repatriation and the high transactional costs associated with currency conversion.
The oil ministry reported that Indian Oil Corporation (IOC) experienced elevated transaction costs, with crude oil suppliers passing on additional expenses. The RBI’s initiative to open rupee vostro accounts in partner countries aims to facilitate payments in Indian rupees, contingent on suppliers complying with regulatory guidelines.
India, the world’s third-largest energy consumer, relies heavily on crude oil imports, spending USD 157.5 billion in the 2022-23 fiscal year. Iraq, Saudi Arabia, Russia, and the UAE are major suppliers, with the Middle East contributing 58% of all supplies.
Despite the push for rupee payments, major players like Reliance Industries Ltd and oil PSUs currently lack agreements with crude oil suppliers for Indian currency transactions. The ministry highlighted India’s position as a significant oil importer, constituting about 10% of the world’s overall oil trade.
The ministry also addressed the impact of crude oil price volatility on PSU oil firms, stating that they are affected to the extent of fuel and loss. As India navigates challenges in diversifying payment currencies for oil imports, the global oil market continues to influence domestic fuel prices.
