Dedollarization: Russia wants to overthrow US dominance, there are hardly any alternatives

Down Angle Symbol A symbol in the form of an angle pointing downwards. Russian President Vladimir Putin and Indian Prime Minister Narendra Modi. Mikhail Svetlov/Getty Images

  • Payment problems have plagued deliveries of Russian Sokol crude oil to Indian Oil Corp. delayed.
  • India prefers payments in rupees, but Russia is unwilling to use the currency.
  • And the Rosneft unit that sells the oil was unable to open a bank account in the United Arab Emirates to accept dirham payments.

Moscow is seeking to replace the use of the US dollar in international trade, but problems with payments in alternative currencies have left barrels of Russian oil stuck at sea.

Shipments of Russian Sokol grade crude oil to state-owned Indian Oil Corp (IOC) have been delayed due to payment problems, Portal reported on Tuesday, citing two sources familiar with the matter. The seller is the Russian state oil company Rosneft.

The problem arose because the Rosneft unit that sells the oil was unable to open a bank account in the United Arab Emirates to receive payments in UAE dirhams, according to Portal.

This delayed six shipments of Sokol oil that the IOC was scheduled to receive from late November to December, Portal reported, citing shipping data. Therefore, most of the cargoes were at sea around India and Sri Lanka.

IOC and Rosneft immediately responded to requests for comment from Business Insider and Portal.

It is not immediately clear how much Sokol oil is in the sea due to the payment issue.

Earlier this month, Bloomberg reported that about five million barrels of Sokol oil shipped from Russia to India never arrived.

The problems with paying for Sokol oil highlight the problems in dealing with Russia amid sweeping sanctions over its invasion of Ukraine.

After numerous Western sanctions against Moscow, India has become an important buyer of Russian oil. This means dollar trade with Russia is restricted – and that’s important because the greenback is the preferred international trading currency.

To buy Russian oil, India insisted earlier this year on doing business in the rupee. That’s because using U.S. dollars could expose the country to secondary sanctions and it worries about acquiring rubles at a fair price on the open market.

However, Indian authorities control the rupee and the currency is not fully convertible – meaning it cannot be easily exchanged for another currency.

This poses problems for Russia, which was stuck with billions of rupees in Indian banks earlier this year. India encourages spending of rupees in India itself. The problem for Russia is that it doesn’t want to buy much from India.

To resolve the rupee problem and reduce currency risks, Russian officials and oil executives have instead urged Indian buyers to pay in Chinese yuan. It is also subject to controls and is not fully convertible, but Russia imports much more from China.

Still, the Indian government is increasingly unhappy with yuan trading amid currency conversion fees and a geopolitical rivalry between Delhi and Beijing.

Another currency Russia could use to trade with India is the UAE dirham – but the UAE is increasing its oversight of Russian companies.

Russia’s Central Bank Governor Elvira Nabiullina acknowledged the challenges of cross-border payments in a recent interview with local media, but added that the country’s economy was rapidly restructuring to cope with international sanctions.

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