In 2022, US froze Russia's ability to trade oil with the world
Since most oil trade takes place in US dollars, they used it to punish Russia
To their utter SHOCK, Russia has now agreed to receive payment in RUPEES from India
Here's how this could shake US dollar's dominance:
Since most oil trade takes place in US dollars, they used it to punish Russia
To their utter SHOCK, Russia has now agreed to receive payment in RUPEES from India
Here's how this could shake US dollar's dominance:
The tension between Russia & Ukraine has only seen dark days since the beginning of the war last year.
Both the countries have taken a hit and bore damages.
The war continues with no end in sight—neither side ready to negotiate.
Both the countries have taken a hit and bore damages.
The war continues with no end in sight—neither side ready to negotiate.
The Russian President, Vladimir Putin has staked his entire presidency on it and must win it.
He is preparing for a long war and for which Russia needs capital to keep flowing in & out of the country.
He is preparing for a long war and for which Russia needs capital to keep flowing in & out of the country.
But when Russia invaded Ukraine, the West imposed severe sanctions on Russia to compel it from funding the war.
Out of those sanctions, Russia is majorly affected by these two following deterrents:
Out of those sanctions, Russia is majorly affected by these two following deterrents:
• Financial - Western nations have limited Russia's access to money.
Russia is barred from making debt payments using foreign currency.
Major Russian banks have been removed from SWIFT and their assets are frozen resulting in delayed payments.
Russia is barred from making debt payments using foreign currency.
Major Russian banks have been removed from SWIFT and their assets are frozen resulting in delayed payments.
• Oil and gas - The US has embargoed all Russian oil and gas imports while other nations have majorly reduced its imports from them.
In December’22, the G7, EU and Australia also imposed a price cap of $60 per barrel above which Russian oil cannot be traded.
In December’22, the G7, EU and Australia also imposed a price cap of $60 per barrel above which Russian oil cannot be traded.
See, Russia is the 2nd largest exporter of crude oil in the world.
In fact it’s oil exports contribute a major chunk in the Russian economy.
On the other hand, India is the third largest oil consumer in the world which accounts for 30% of global consumption.
In fact it’s oil exports contribute a major chunk in the Russian economy.
On the other hand, India is the third largest oil consumer in the world which accounts for 30% of global consumption.
While USA’s sanction was an open threat to all countries in world, India was unmoved.
Because India is working towards expanding the energy sector in the country to create new opportunities for investment and collaborations.
Because India is working towards expanding the energy sector in the country to create new opportunities for investment and collaborations.
It aims to increase the natural gas consumption from 6% to 15% by 2030.
So to reach the target, you need to fuel the ride.
So to reach the target, you need to fuel the ride.
And as quoted by the oil minister of India, Hardeep Singh Puri- “India will secure oil from anywhere as long as the terms are beneficial.
We won’t allow the geopolitical turbulence or the pandemic or anything else to come in the way of our ability to supply to our consumer”.
We won’t allow the geopolitical turbulence or the pandemic or anything else to come in the way of our ability to supply to our consumer”.
India literally said:
So when Russia offered India, a huge discounts on Crude oil, India seized the opportunity
Russia has now become India’s biggest oil supplier
Even though India does not follow the price cap mechanism, it’s trading with Russia all while not violating any of the western sanctions
Russia has now become India’s biggest oil supplier
Even though India does not follow the price cap mechanism, it’s trading with Russia all while not violating any of the western sanctions
Now the question arises— Maal toh mil gaya, paisa kaise denge?
See, the US Dollar is most widely-accepted currency for business.
But due to sanctions, Russia’s access to the dollar reserve is limited.
See, the US Dollar is most widely-accepted currency for business.
But due to sanctions, Russia’s access to the dollar reserve is limited.
So as a response, Russia is taking efforts to de-dollarise its economy
— substitute the US dollars with other currencies
Hence, Indian refiners have begun paying for most of their Russian oil purchases via Dubai-based traders in UAE dirhams instead of U.S. dollars.
— substitute the US dollars with other currencies
Hence, Indian refiners have begun paying for most of their Russian oil purchases via Dubai-based traders in UAE dirhams instead of U.S. dollars.
This is because Russia is leading de-dollarization.
So, they need to find an alternate currency — more stable in nature, and what could be better than the one pegged to the US dollar itself?!
So, they need to find an alternate currency — more stable in nature, and what could be better than the one pegged to the US dollar itself?!
But more recently, the US and Britain added Moscow and Abu Dhabi-based Russian bank MTS to the Russian financial institutions on the sanctions.
This made matters even worse for Russia.
This made matters even worse for Russia.
Now, Russia is in desperate need to trade with the rest of the world because it’s still dependent on its oil and gas revenues. So, they are open to trying new options.
One being, settling transaction in Indian Rupees!
One being, settling transaction in Indian Rupees!
Apparently, Russia started accepting Indian currency, but then India increased its imports manifolds—leaving Russia with excess reserve of Indian Rupees
Now this unfolds as a problem for Russia
India has increased its imports seamlessly but there is barely any change in exports
Now this unfolds as a problem for Russia
India has increased its imports seamlessly but there is barely any change in exports
This has widened the trade deficit gap making the local currency payment mechanism futile.
This leaves the Indian Rupee highly unstable with it’s value continuously depreciating.
No country wound want to pile up foreign currency with such traits.
This leaves the Indian Rupee highly unstable with it’s value continuously depreciating.
No country wound want to pile up foreign currency with such traits.
But to tackle this issue, the two countries are working on building a direct infrastructure between the Russian and Indian banking systems.
And how so?
Through ‘Rupee’ Vostro Account.
Vostro Accounts keep a foreign entity's holdings in the Indian bank, in Indian rupees.
And how so?
Through ‘Rupee’ Vostro Account.
Vostro Accounts keep a foreign entity's holdings in the Indian bank, in Indian rupees.
When an Indian importer wants to make payment to a foreign trader in ₹, the amount will be credited to this Vostro account.
And when an Indian exporter needs to be paid for supplying goods or services, this Vostro account will be deducted.
And when an Indian exporter needs to be paid for supplying goods or services, this Vostro account will be deducted.
And the amount will be credited to the Indian exporter's account.
This arrangement will facilitate the transaction between the two parties.
This arrangement will facilitate the transaction between the two parties.
Now how is it beneficial?
1. It enables one to offer international banking solutions to a customer without opening a bank branch in a foreign nation
2. It makes the payment system more efficient by minimizing the time for transfer of funds
1. It enables one to offer international banking solutions to a customer without opening a bank branch in a foreign nation
2. It makes the payment system more efficient by minimizing the time for transfer of funds
The transactions between Russia and India is a proof that trades can be carried out using other currencies.
But, USD is still the most favorable currency because 70% of the global trade are still conducted using it
— this makes USD the most liquid currency in the world
But, USD is still the most favorable currency because 70% of the global trade are still conducted using it
— this makes USD the most liquid currency in the world
Other currencies might give us the mirror effect of dollar but in long term dollar’s significance will be hard to replicate.
But in the changing world, diversifying the currency market with no one currency claiming the hedge money will strengthen the global economy.
But in the changing world, diversifying the currency market with no one currency claiming the hedge money will strengthen the global economy.
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