India and UAE Forge Historic Oil Deal in Local Currencies, Boosting Economic Collaboration
India and the United Arab Emirates (UAE) have taken a significant step in strengthening their economic collaboration with a historic oil deal conducted in local currencies. The agreement, which was signed exactly a month after Indian Prime Minister Narendra Modi and UAE President Sheikh Mohamed bin Zayed Al Nahyan inked a Memorandum of Understanding on trade in national currencies, marks a new era of enhanced cooperation between the two nations.
The Abu Dhabi National Oil Company (ADNOC) and the Indian Oil Corporation Limited (IOCL) completed their first-ever crude oil transaction using the newly implemented Local Currency Settlement (LCS) mechanism. This ground-breaking transaction involved the sale of one million barrels of oil, with both the Indian rupee and UAE dirhams being utilized as payment currencies.
The implementation of trade in local currencies is regarded as a significant development in India-UAE cooperation, serving to simplify international financial interactions and pave the way for increased economic collaboration. Prime Minister Modi, in acknowledging the importance of this move, declared on July 15 that trade in local currencies would play a vital role in fortifying bilateral relations.
The UAE holds a prominent position as one of India’s key partners in the oil and gas sector, which is crucial for India’s energy security. Petroleum products constitute a substantial portion of the trade between the two countries. The UAE stands as the fourth largest source of crude oil and the second largest source of liquefied natural gas (LNG) and liquefied petroleum gas (LPG) for India. In 2022, petroleum products worth $35.10 billion were traded, accounting for 41.1 percent of the total bilateral trade.
The introduction of the LCS is expected to reduce transaction costs and time, while also increasing reliance on local currencies. This improvement complements the preferential terms granted by the Comprehensive Economic Partnership Agreement (CEPA), allowing traders to select the payment currency based on mutual agreement.
This recent transaction conducted under the LCS is the second of its kind, following the inaugural deal on July 15 that involved the sale of 25 kilograms of gold from a prominent UAE gold exporter, Peekay Intermark, to an Indian buyer, YES Bank. This transaction was valued at ‘12.84 crore. Additionally, bilateral trade between India and the UAE has witnessed an upward trend, reaching $85 billion in 2022. This remarkable figure positions the UAE as India’s third-largest trading partner for the 2022-23 period, as well as India’s second-largest export destination. Conversely, India stands as the UAE’s second-largest trading partner.
With its potential to enhance economic ties and simplify financial transactions, the India-UAE oil deal conducted in local currencies serves as a significant milestone in the pursuit of stronger bilateral relations. By aligning their economic interests and fostering collaboration, both nations stand to reap the benefits of this historic agreement.
