India’s first rupee payment for UAE oil set to spur two-way trade boom

India, the UAE’s second-largest trading partner, has made its first-ever payment in Rupees for crude oil purchased from the Emirates, signalling what could be a paradigm shift in dollar-denominated global trade transactions while giving a game-changing fillip to the booming two-way trade that is on track to cross $100 billion mark in a couple of years.

Businesses and traders from both sides hailed the development as a very vital aspect of bilateral cooperation, paving the way for enhanced economic collaboration while making international financial interactions simpler. Following the signing of the Comprehensive Economic Partnership Agreement (Cepa) in 2022, the UAE-India Trade rose to $85 billion in 2022. The UAE emerged as India’s third-largest trading partner and second-largest export destination in FY2022-23. Conversely, India is the UAE’s second-largest trading partner.

For India, the world’s third-largest energy consumer, the payment in local currency marks a historic moment in its strategic push to decouple from the ubiquitous dollar by promoting its currency globally. The move is also in line with the strategy of BRICS, of which India is a key partner, to replace the greenback as the world’s reserve currency. Oil industry experts said trade settlements in the rupee are part of the world’s fifth-largest economy’s broader efforts to diversify oil suppliers, cut transaction costs, and establish the local unit as a viable trade settlement currency.

Currency experts said a rupee-based trade settlement eliminates the need for conversion into another currency before paying for imports or exports, helping to save foreign exchange reserves…The rupee payment initiative also aligns with the Reserve Bank of India’s (RBI) move on July 11, 2022, allowing importers to pay in rupees and exporters to receive payments in the local currency. During

India’s Commerce and Industry Minister Shri PiyushGoyal said that both countries are aiming to expand the bilateral trade to make it $100 billion.

In the financial year 2022-23 (April 2022 to March 2023), India spent $157.5 billion on importing 232.7 million tonnes of crude oil. Key suppliers included Iraq, Saudi Arabia, Russia, and the UAE, with the Middle East contributing 58 per cent of all supplies. India’s domestic supply meets less than 15 per cent of the country’s demand.