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For the first time ever, Indian Oil Corp. has purchased oil from the Abu Dhabi National Oil Company and settled using Indian rupees. The company bought one million barrels of crude from UAE and paid in rupees instead of the U.S. dollar as India tries to push the rupee as a trade instrument in the international markets. India's central bank has been urging local banks to request their clients to settle trades between the United Arab Emirates and India using the dirham (AED) or Indian rupee (INR) in a bid to lower U.S.-dollar-based transactions
The Reserve Bank of India has been promoting settlement in local currencies particularly with countries with which India has a trade deficit, with the knock-on effect of boosting the rupee's global reach. India has a large trade deficit with the UAE, with the figure hitting $21.62 billion in 2022/23, or 8.2% of its total deficit. A month ago, the two countries agreed to facilitate trade in rupees instead of dollars so as to reduce the outflow of dollars on account of this trade deficit.
"The RBI has asked banks to encourage clients and corporates to initiate INR-AED trades gradually, instead of using the dollar," a treasury official has told Reuters.
The central bank is "keen that volumes of such trades go up" and "has assured the market that they will be ready to support banks with INR-AED trades," the banker has said
Back in June, Business Insider reported that Russia has been accumulating $1B in Indian rupees per month and struggling to trade in the currency since India imports far more from Russia than the reverse. The two countries have been settling trades in the Indian rupee ever since Russia was cut off from the US dollar-dominated global payments systems following its war in Ukraine. However, Russia is struggling with an excess supply of rupees because there's more Indian demand for Russian goods than the other way around.
Overall, Bloomberg has estimated that Russia accumulated a staggering $147 billion in net foreign assets built up over 2022 alone due to sanctions and the new currency regime.
By Alex Kimani for Oilprice.com
Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com.