India, recognized as the world’s third-largest energy consumer, has made a significant move in international trade by making its first-ever payment in rupees for crude oil purchased from the United Arab Emirates (UAE). This strategic decision marks a notable shift in the country’s approach to global trade and currency usage.
The transaction was executed by the Indian Oil Corporation (IOC), which paid for one million barrels of crude oil from Abu Dhabi National Oil Company (ADNOC) in Indian rupees. This development aligns with the Reserve Bank of India’s decision in July 2022 that allowed imports and exports to be invoiced in Indian rupees. The intention behind this move is to promote the rupee globally, diversify oil suppliers, and cut transaction costs by eliminating the need for dollar conversions.
India’s reliance on oil imports is substantial, with over 85% of its oil needs being met through imports. Therefore, this initiative to use the Indian rupee for such significant transactions could have far-reaching implications for India’s trade and economic policies. The decision is seen as part of a broader strategy to establish the rupee as a viable trade settlement currency and to streamline transactions by removing the necessity of currency conversions.
This approach could potentially open doors for similar arrangements with other countries, enhancing India’s trade flexibility and reducing its dependence on the US dollar for international transactions. However, it’s important to note that the internationalization of the rupee is an ongoing process, and there are no specific targets set as of now.
The move is seen as a step towards strengthening India’s economic sovereignty and reducing transactional costs associated with the US dollar-based oil trade. This could also provide a boost to the Indian rupee in international markets.