*****From Russia (for crude), with rupees – The Economic Times

Clipped from: https://economictimes.indiatimes.com/opinion/et-editorial/from-russia-for-crude-with-rupees/articleshow/92836038.cms

Synopsis

Ensuring Russian oil supply is critical for the rupee-dollar exchange rate that determines the bill for Indian energy imports from traditional suppliers. It also cushions the global energy market from the shock of Russian supply withdrawal.

With the Reserve Bank of India (RBI) allowing imports to be paid for in rupees, the missing piece in the policy jigsaw has fallen into place following Western sanctions on Russia over its invasion of Ukraine. India has not joined the boycott of Russian energy exports and needed a mechanism to pay for Ural crude bypassing the embargo on international financial transactions. Vostro accounts with Russian banks permit payments for crude oil imports in local currency at a time India's foreign exchange reserves are under pressure on both the capital and current accounts. It also provides Russian exporters a route to deploy the trade surplus they will run up as crude oil is redirected from Europe to Asia.

The payment mechanism reinforces a shift in Indian energy imports in reaction to Europe’s intention to reduce its dependence on Russia. This new supply is critical for both domestic consumption and India's export of petroleum products. That gains are to be made on both counts without straining the rupee makes a persuasive case for a longer-term view of energy imports from Russia. Delivery of these imports could, for instance, require a review of the infrastructure. With a duty on export of petroleum products, New Delhi has improved its energy security at reasonable cost. The highly lucrative re-export of Russian crude as petrol, diesel and jet fuel to Europe, however, faces the prospect of tightening sanctions that could affect shipping and insurance.

Ensuring Russian oil supply is critical for the rupee-dollar exchange rate that determines the bill for Indian energy imports from traditional suppliers. It also cushions the global energy market from the shock of Russian supply withdrawal. The overall impact on India's oil import bill will, of course, depend on the rupee-rouble exchange rate. Since the outbreak of hostilities, Moscow has had to devalue its currency prodigiously. The rupee-rouble rate should, however, track the fundamentals of underlying bilateral trade.

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