To bolster the de-dollarization agenda, India and Russia signed a pact to settle oil and gas payments in local currencies. The aim was to bypass the US dollar and the agreement was forged in 2022 to use the rupee-ruble pair. India even opened Vostro accounts for Russian refiners to accept the rupee for crude oil shipments. Three years later, neither the rupee nor the ruble is used for trade but a new third-party currency, the UAE’s dirham benefited from the deal.
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India & Russia’s De-Dollarization Plan Fails as UAE’s Dirham Gains
Since the US tightened sanctions on Russia, Indian refiners are forced to source Russian oil from traders in the UAE. While the initial de-dollarization plan was to use the rupee-ruble for oil, India now has to pay dirhams for procurement. Suppliers in the UAE have made it clear that they accept the US dollar and for local currencies, only dirhams. And what is the dirhams pegged to? It’s pegged to the US dollar at 3.67 AED to 1 USD.
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Therefore, the UAE and the US dollar are benefiting from the failed de-dollarization plan hatched by India and Russia. Despite the agreement to use rupee-ruble for oil, India is buying via West Asia-based traders and not directly with Russia. Two people familiar with the matter told Mint on the condition of anonymity that India and Russia are working to resolve the issue. “There was a payment issue, which has been sorted out now,” said a person close to the development.
“While the ruble is not freely convertible, the dirham is both freely convertible and directly pegged to the US Dollar, offering greater ease in international transactions. Also, payments have been happening in dirhams because Indian state-run refiners are primarily buying it from UAE-based traders. Even if the Russians give their crude oil for sale to a trader, they earmark it for a particular company. This is something specific to them. Also, the discounts on Russian oil have come down,” said the source, indicating that de-dollarization is faltering.