Rupee Payment Option For Oil Imports Faces Lack of Acceptance
The Centre has informed Parliament's standing committee that suppliers have resisted India's plan to use the rupee for imports of crude oil because of worries about financial repatriation and large transaction costs.
The Reserve Bank of India (RBI) allowed importers to pay in rupees and exporters to receive payments in rupees on 11 July 2022, to globalise the Indian currency, even though the international standard designated the US dollar as the default payment currency for crude oil contracts.
The oil exporters have been slow to accept the rupee, despite occasional success in non-oil commerce with particular nations. According to the parliamentary committee's findings, which were based on the ministry's responses, no crude oil imports by oil Public Sector Undertakings (PSUs) were settled in Indian rupees.
Major crude oil suppliers, including ADNOC from the UAE, expressed concerns about fund repatriation and emphasised the high transactional costs associated with currency conversion, coupled with exchange rate fluctuation risks.
The oil ministry pointed out that the Indian Oil Corporation (IOC) faced substantial transaction costs as crude oil suppliers passed on the additional expenses to the IOC.
Despite the RBI allowing the opening of rupee vostro accounts in partner trading countries and facilitating payments in Indian rupees, there is currently no agreement between Reliance Industries, oil PSUs, and any crude oil supplier to conduct transactions in Indian currency for crude oil purchases.
India, being the world's third-largest energy consumer, relies on imports for over 85 per cent of its crude oil needs. In the fiscal year 2022–23, the country spent USD 157.5 billion on importing 232.7 million tonnes of crude oil, with Iraq, Saudi Arabia, Russia and the UAE being the primary suppliers. The Middle East accounted for 58 per cent of these supplies, amounting to 141.2 million tonnes. In the current fiscal year, from April to November, India imported 152.6 million tonne of crude oil for USD 113.4 billion.
Addressing price volatility concerns, the ministry explained that public sector oil firms are impacted by fluctuations in crude oil prices, primarily in terms of fuel and loss. To mitigate this volatility, oil companies engage in hedging various product cracks in the forward market.
All hedge positions are conducted through over-the-counter (OTC) markets with registered international counterparties, and the details are reported to authorised dealer banks every quarter. Additionally, oil companies hedge their forex risk in alignment with their risk management policies.
