India's state-run Bank of Baroda has ceased clearing payments for Russian oil sold at prices exceeding the cap established by Western nations, according to three sources with direct knowledge of the situation. This decision could hasten the adoption of a rupee-based trade mechanism. Previously, some Indian refiners used the United Arab Emirates dirham currency, primarily through Bank of Baroda, to pay for Russian low-sulfur crude priced above the $60 per barrel cap.
Late last year, the Group of Seven economies, the European Union, and Australia introduced the price cap to prevent Western services and shipping from trading Russian oil unless sold at a low, enforced price to limit Moscow's funding for the war in Ukraine. "Bank of Baroda is extremely cautious in settling payments for Russian oil bought (at levels) above the price cap," said one source.
The state-owned lender informed refiners last month that it would no longer settle payments for Russian oil purchased above the price cap. Bank of Baroda has not responded to requests for comment from Reuters. Prior to the Ukraine conflict, Indian refiners infrequently purchased oil from Russia due to elevated freight costs. However, in the wake of Western sanctions on Moscow following the invasion of Ukraine, Indian refiners have been acquiring discounted Russian oil in large quantities.
Russia has overtaken Iraq as India's primary oil supplier in recent months. Industry insiders predict that prices for Russian sweet crude, such as Sokol and ESPO Blend, could exceed the price capdue to a significant surge in global oil prices sparked by OPEC+'s recent decision to reduce output. Some refiners, particularly private firms, have been making payments in dirhams for Russian crude via private lender Axis Bank, as reported by Reuters last month. It remains unclear whether Axis Bank has also halted the settlement of trades for Russian oil sold above the price cap. Axis Bank has not responded to Reuters' request for comment.
Though Indian refiners purchase Russian oil on a delivered basis, invoices reviewed by Reuters reveal shipping charges, which assist in determining the crude price at Russian ports. Sources suggest that difficulties in settling trades for Russian oil might prompt sellers to accept rupee payments, particularly for barrels exceeding the price cap.
"We have neither stopped nor reduced purchases of Russian oil after Bank of Baroda's decision ... we will consider using rupees to pay for oil purchased above the price cap," said another source. India does not acknowledge the Western price cap on Russian oil, as stated by a senior oil ministry source last month.
India established a mechanism to settle international trade in rupees last year, and some Russian banks subsequently opened vostro accounts with Indian banks to facilitate rupee trade. The mechanism has not yet been implemented due to Russia's reluctance to accept rupees and India's trade deficit with Moscow. However, during a recent visit to India, Rosneft CEO Igor Sechin discussed expanding cooperation with India across the hydrocarbons value chain, including the possibility of making payments in national currencies. A transition to rupee payments would help Russia reduce its reliance on dollars and conserve foreign exchange for India.
