India's getting around sanctions against Russia by using Asian currencies to buy Russian coal

·2 min read
Vladimir Putin and Narendra Modi shake hands
Russian President Vladimir Putin and Indian Prime Minister Narendra Modi in May 2018.Getty Images
  • Indian companies are switching from the US dollar to Asian currencies to buy coal from Russia.

  • They've used the Chinese yuan, the Hong Kong dollar, and the UAE dirham in recent weeks, per Reuters.

  • India has become a large buyer of discounted Russian energy due to sanctions over the Ukraine war.

Indian companies are increasingly using Asian currencies to buy coal from Russia, ditching trade in the US dollar to get around Western sanctions over the Ukraine war, according to a Reuters review of customs documents and industry sources.

As sweeping sanctions are limiting purchases from Russia's traditional markets in Europe, the country has to price its energy products at heavy discounts, attracting price-sensitive buyers like India and China.

Most global trade in commodities is usually denominated in the dominant greenback, but the sanctions have prompted countries still doing business with Russia to switch to alternative currencies and payments systems.

In July, Russia exported 2.06 million metric tons of coal to India — over 20% more on-month — making it the South Asian nation's third-largest supplier of the fossil fuel, per Reuters. Indian coal buyers have used the Chinese yuan, the Hong Kong dollar, the euro, and the United Arab Emirates dirham for such purchases in recent weeks, according to the news agency.

In June, coal buyers in India paid for 44% of the coal it imported from Russia using non-dollar currencies, Reuters reported, citing a summary of deals compiled by a trade source based on customs documents. The yuan and the Hong Kong dollar each accounted for about 30% of the non-dollar payments, while the euro accounted for under 25% and the dirham made up about 17% of the payments, Reuters said.

India has not overtly condemned Russia or imposed sanctions against it over the war in Ukraine. In the meantime, its rupee currency has hit record lows against the US currency, meaning the cost of its dollar-denominated imports have soared. The rupee has lost around 7% against the dollar this year, but only 0.6% against the yuan and it's gained 3% against the euro.

It's also just one of several emerging nations that have been snapping up cheap Russian energy imports amid soaring inflation. Brazil, Sri Lanka, and Laos have also said they were seeking Russian fuel imports.

To get around Western sanctions, Russia and China are looking to establish alternatives to the US dollar hegemony. India was also considering using an alternative ruble-based payment system. Meanwhile, five of Turkey's banks have started using Russia's Mir payments system.

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