Shipments of Russian Sokol crude oil to Indian Oil Corp (IOC) have been delayed due to payment issues, highlighting the challenges faced by Russia in its efforts to reduce the dominance of the US dollar in international trade. The delay stems from the Rosneft unit, the state-owned company selling the oil, being unable to open a bank account in the United Arab Emirates to receive payments in the UAE dirham. As a result, six cargoes of Sokol oil that were scheduled to be delivered to IOC have been stuck at sea since late November. This comes after Bloomberg reported earlier this month that five million barrels of Sokol oil bound for India never arrived.
India has become a significant buyer of Russian oil due to the Western sanctions imposed on Moscow. The restrictions on using the dollar for trade with Russia have prompted India to insist on settling trades in the rupee. However, the rupee is not fully convertible, and Indian authorities have controls on its use, creating difficulties for Russia in accessing the currency. As a workaround, Russian officials have been encouraging Indian buyers to pay in Chinese yuan, but India is growing increasingly uncomfortable with this arrangement due to currency conversion charges and geopolitical tensions with China.
Another potential currency for trade between Russia and India is the UAE dirham, but the UAE has been tightening oversight of Russian companies. The payment issues faced by Russia highlight the challenges it faces in diversifying away from the dollar and finding alternative currencies for international trade. Despite these difficulties, Moscow remains committed to reducing its dependence on the US dollar, with Russia’s central bank governor noting that the country’s economy is restructuring to adapt to international sanctions.
The payment problems with Russian Sokol oil deliveries to India serve as a reminder of the obstacles faced by Russia as it seeks to challenge dollar dominance. As the oil barrels remain stuck at sea, it becomes clear that finding viable alternatives to the dollar is not a straightforward task. The incident also underscores the delicate balance countries must strike when seeking to trade with Russia under the shadow of sanctions. With geopolitical tensions and currency control issues, finding a mutually acceptable currency for trade remains a challenge for both Russia and its trading partners.
In the ever-changing landscape of international trade, the quest to reduce the reliance on the US dollar continues. However, as this episode demonstrates, the road to dollar diversification is littered with obstacles. While India’s preference for settling trades in the rupee aims to avoid exposure to secondary sanctions, it also presents currency control issues and limited convertibility. The search for alternative currencies, such as the Chinese yuan or the UAE dirham, raises its own challenges, including geopolitical rivalries and tighter oversight by trading partners. As Russia and its trading partners navigate these complexities, it remains to be seen how successful their efforts will be in toppling dollar dominance in international trade.
