Indian oil refiners are paying in Chinese yuan for some oil imports from Russia. The Western sanctions on Russia following the invasion of Ukraine have forced the country and its oil buyers to seek alternatives to the dollar for settling payments.  

India has emerged as the largest buyer of seaborne Russian crude. China also shifted to using yuan for energy imports from Russia.  

In June, the Indian Oil Corporation became the first state-owned refiner to pay for Russian purchases in Yuan, reports Reuters.   

While the dollar has been the global currency of oil trade, Russia has been ousted from dollar and euro financial networks by sanctions from Western countries. The yuan is increasingly becoming the mode of payment in Russia, especially since April 2023, when the yuan replaced the US dollar as the most traded currency in Russia. 

The rise in yuan payments has given China an edge to internationalise its currency against the US dollar.  

In March, however, the Indian Government asked banks and traders to avoid using the Chinese currency amid long-standing geopolitical differences with the country. India’s Government officials told Reuters they would prefer to use United Arab Emirates dirhams to settle trade receipts.  

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Russia’s ability to buy and trade in yuan may highlight the country’s ability to weather the impact of sanctions. However, Russia has been caught amid a major cash crunch since May. The country’s earnings from oil and gas declined by 45% from the same time in 2022 to Rbs1.64trn. The country’s rouble reserves also reached unprecedented deficits as military spending increased. The deficits were offset by forcing oil producers to pay more taxes.  

“Some refiners are paying in other currencies like yuan if banks are unwilling to settle trade in dollars,” an Indian minister told Reuters.  

Russia’s cash deficit was also in focus when the country’s oil companies asked Venezuela’s state-run oil producer to take control over exports from their joint ventures to revive Russia’s cash flow hit by sanctions.