Oil traded around $100 a barrel on hopes of a peace deal after Russia’s invasion of Ukraine saw its price peak at around $140 a barrel this week. War-pressed Kyiv has signaled that it may give up on its NATO aspirations in exchange for the withdrawal of Moscow, but hydrocarbon prices could rise again if those talks fail. In India, our oil-hit economy may find a small cushion in the Russian offer of cheap crude. The package on the table is both small and temporary, as reported, although such imports would not defy US sanctions on Russia—the world market should not be in short supply, and thus could be increased after a trial run. . Given its inflationary fears, the US may also look the other way. India’s trade challenge emerges rather than from financial pressure from the West by Russia. Several Russian banks have been banned from the SWIFT network for cross-border transfers, prompting both countries to work on new ways of settling their trade bills.
We need to act quickly. Russian exporters owe about $500 million to Indian exporters. As with the rationale for buying oil cheaply, we must let economic logic determine the solution. Our main fallback options include the use of the rupee and ruble for settlements, a rusty Soviet vintage instrument that can be revived in a new incarnation. In this context, the Reserve Bank of India has asked Indian banks to do due diligence to include smaller Russian banks in our clearing system. For Internet transactions that bypass the Dollar platform, as one proposal goes, we can link our integrated payments. Interface (UPI) with the equivalent of the Russian central bank. While it is not difficult to create a payment route, we cannot fall back on a fixed exchange rate. Any such peg shall be subject to arbitrary decisions and bilateral disputes. For trade fairness as well as adjustment in demand and supply, a floating rate is necessary. Since our trading volume is low, lumpy and led by big-ticket purchases, a direct mutual float can lead to wild volatility. Therefore all currencies are usually valued against the US dollar, which serves not only as the global currency but also as a reference for other conversions. Nevertheless, since a large portion of Russian exports were suppressed, most of its assets were frozen and the ruble crashed in dollar terms, an argument could be put forward that the greenback value of the ruble should be offset by Russia’s revised trade dynamics. was inadequately reflected. The Chinese yuan has reportedly been proposed as a stand-in reference for the rupee-ruble float. This option should not be rejected without due consideration. The two countries have a relatively diverse and stable trade relationship with China, which trades strongly with the others, and the conversion rate derived from rupee versus ruble in yuan terms may work.
Of course, care should be taken that US sanctions are not violated. At the same time, we must be mindful of the premium that the US places on the dominance of the dollar in world trade, especially if it espouses the threat of Beijing promoting its yuan as an international rival. While trade pricing is hard to separate from geopolitics, given the huge privileges that go with issuing currency, perhaps some clever diplomacy by New Delhi could allay any concerns Washington has about our new trading regime. . We should clarify that a yuan gauge for a currency float will not indicate a ‘trade block’ of any kind. It is a function of our economic conditions, neutrality and national interest, that’s all.
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