China and India, two of Russia's major export markets, are managing to construct trade deals that enable their importers to continue taking delivery of Russian fuel that before Moscow's invasion of Ukraine would have been paid for using dollar denominated letters of credit (L/Cs).

The requirement for L/Cs for China to purchase Russian oil has been waived according to the Hudson Institute while the Reuters news agency says it has seen a deal involving the yuan denominated purchase of Russian coal by an Indian cement manufacturer.

Such deals may blunt the impact of sanctions imposed on Russia and the disconnection of designated Russian and Belarusian entities from the Swift messaging network that have curbed the use of conventional US dollar denominated L/Cs transactions with Russia.

Oil for China

China has benefitted substantially from deeply discounted Russian oil, obtaining a discount 18.2 per cent on the Brent crude price in May, compared with just 9 per cent in January as Russia became increasingly concerned with replacing markets closing in the West according to the Hudson Institute.

The Washington based think tank says that China's purchases have also been facilitated by waiving L/C requirements and extending repayment terms on a deal-by-deal basis to complete transactions.

Coal for India

An Indian cement maker has recently purchased Russian coal in a deal incorporating a yuan denominated L/C issued by India's biggest private lender, HDFC Bank, according to a Reuters report.

There is no suggestion that the deal, which also involves the Hong Kong branch of international lender HSBC as the correspondent bank, in any way breaches sanctions imposed on Russia.

But the report does show another way in which Russia could continue to export commodities abroad without settling in US dollars, despite restrictions aimed at freezing it out of financial markets.

More details

Further details on the research by the Hudson Institute on energy trading involving China and Russia can be found here.

The Reuters report, How an Indian cement maker bought Russian coal using yuan, can be found here.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.