India and China are both reportedly in discussions about paying in their own currency for oil now that sanctions imposed on Moscow, the bar on several Russian banks from the SWIFT messaging platform and self-imposed restrictions introduced by many banks have stemmed conventional flows of US dollar letter of credit (L/C) transactions (DC World News, 4 March 2022).

The US has imposed a ban on Russian crude, the UK plans to wind down its purchases by the end of the year and the European Union is weighing similar measures, all of which pressures have resulted in Russian oil selling for a reported discount of as much as US$25-30 per barrel.

While discussions for rupee-denominated purchases from India may be driven by these deep discounts, talks with China to enable it to pay in yuan appear to have been initiated by Saudi Arabia, perhaps motivated by Riyadh's ambition to gain market share from Russia in the Chinese market.

Exploring options

Discussions on the possible use of the yuan and rupee in deals with China and India are taking place, although there are no clear indications whether suitable arrangements can be made.

India's junior oil minister Rameswar Teli has said that the country's public sector oil buyers neither have any contract nor is any proposal under consideration from Russia or any other country for purchases of crude oil in Indian rupees.

But oil minister Hardeep Singh Puri said earlier this month that India was in talks with Russian authorities to buy oil and was evaluating issues related to insurance, freight and payment.

Market share

Saudi Arabia meanwhile is said to be in active talks with Beijing to price some of its oil sales to China in yuan according to a report by Dow Jones

The report provided no indication on the likelihood of Saudi Arabia making such an agreement nor how much of its sales might be yuan denominated if it were to enter into deals in the Chinese currency.

China has long wanted to purchase oil in yuan while Saudi Arabia and Russia have been neck-and-neck as its top sources of oil in recent years. Riyadh may be looking at turmoil in the US dollar denominated oil payment system to gain market share from Russia in the lucrative Chinese market.

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