Indian refiners pivot away from the greenback to settle Russian oil trades

Indian refiners are increasingly ditching the USD to settle Russian oil purchases, opting instead for alternative currencies to dodge sanctions risks amid escalating geopolitical tensions and shifts in US policy. The workaround is a “tactical attempt to keep relatively cheaper flows going while reducing exposure to US jurisdiction over USD clearing and sanctions risk,” economist Abhijit Mukhopadhyay tells EnterpriseAM.

How it works: Buyers are depositing INR into special overseas accounts held by Russian sellers, which are then converted into AED or CNY. The trades are being facilitated by Indian banks with a limited offshore footprint to fly under the radar of US jurisdiction. Refiners are also weighing the use of Singapore’s SGD and Hong Kong’s HKD, though transactions depend on the comfort levels of individual banks.

A classic sanctions-arbitrage play

This strategy allows buyers to diversify invoicing currencies and route through niche banks, accepting “higher operational complexity in exchange for supply security and price advantage,” Abhijit tells us.

Could Iran be next? Similar mechanisms could be deployed for Iranian crude, though Tehran is likely to favor the CNY over the INR. “CNY is attractive because Iran can use it to buy from China and settle other Asian trade, as most of the West does not do any business with Iran,” Abhijit noted. Widespread use of the INR remains unlikely given the post-sanctions drop in bilateral trade and the limited scope for Iran to spend INR balances on Indian imports.

The USD isn’t dead yet

It’s a stress test: While Deutsche Bank recently noted that the ongoing geopolitical conflict is stress-testing the USD’s role in global oil trade, the greenback’s core dominance isn’t under immediate threat.

A multi-polar margin: These developments are contributing to the “slow but steady structural erosion of the USD’s share” in reserves and commodity trade, Abhijit explained. However, they primarily deepen a multi-polar ecosystem around sanctioned flows, where the USD remains the primary anchor for pricing, hedging, and reserve management in non-sanctioned trade.

What’s next for India: Driven by the threat of secondary sanctions, this tactical shift could have lasting legacy effects. If these alternative payment channels become normalized, some non-USD usage will likely persist to insulate energy supply chains. However, practical limits on INR internationalization and a reluctance to over-rely on the CNY point to a “hybrid equilibrium,” Abhijit said. “The USD is likely to remain the central currency, but Indian buyers will keep a portfolio of options, which they can scale up or down as sanctions and geopolitics evolve.”