Rupee oil payments need willing sellers: India’s crude oil basket stood at $119.99 a barrel on October 22, according to the Petroleum Planning and Analysis Cell. At such prices, a weakening rupee compounds the burden on refiners and raises difficult choices over domestic fuel prices. The renewed pressure makes a familiar proposal attractive: settle more oil purchases in rupees and reduce dependence on dollars. Its benefits, however, depend on what foreign suppliers can do with the rupees they receive.
Changing the payment currency will not make expensive oil cheaper. It could reduce conversion costs and dependence on particular banking channels, provided the alternative arrangements are commercially viable. India needs to develop those arrangements without confusing a change in settlement currency with protection against an oil-price shock.
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India imports close to 90% of the oil it consumes. The IMF put its oil import bill, including crude and petroleum products, at $178.7 billion in 2023–24, equivalent to 5.1% of GDP. Refined petroleum exports offset part of that expenditure, but the economy remains exposed to international prices.
For an importer buying one million barrels at $120 each, the invoice comes to $120 million. If the rupee depreciates while the oil price remains unchanged, the domestic cost rises further. Allowing that increase to reach consumers adds to inflation. Holding retail prices down squeezes oil companies’ margins unless the government provides relief through lower taxes or budgetary support.
What rupee oil payments can save
Settling some purchases directly in rupees or the supplier’s currency can remove the need for the Indian buyer to obtain dollars for those transactions. Where banks can provide competitive exchange rates and reliable settlement, avoiding an intermediate conversion may lower costs.
The saving is conditional. A supplier accepting rupees may demand compensation for exchange-rate risk or for the difficulty of converting its earnings. Such charges could absorb any saving from bypassing the dollar. If an oil contract remains linked to a dollar benchmark, its rupee equivalent will still rise when the rupee weakens against the dollar.
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Paying in the supplier’s currency also leaves India exposed to movements in that exchange rate. And if a supplier immediately converts its rupee receipts into dollars, some foreign-exchange demand has merely shifted from the buyer to the seller. The benefit depends partly on whether suppliers retain and use their rupee earnings.
India therefore needs partners willing to accept alternative currencies on reasonable terms. The commercial terms of the transaction deserve more attention than the currency printed on the invoice.
The RBI framework needs usable rupee balances
The Reserve Bank of India established its international rupee trade settlement framework in July 2022. Under the arrangement, an Indian importer pays rupees into a Special Rupee Vostro Account maintained by an Indian bank for the overseas correspondent bank. Indian exporters can receive payments from balances in these accounts.
In August 2025, the RBI removed the requirement for its prior approval to open such accounts. This eased an administrative obstacle; it did not resolve the question of why an overseas supplier should hold rupees.
That question is particularly relevant to energy trade. India may buy far more oil from a country than it sells goods and services to it. The supplier then earns rupees faster than it can spend them on Indian exports. Opening more accounts cannot, by itself, create demand for those balances.
Energy settlement must consequently fit into a broader commercial relationship. Suppliers need opportunities to purchase Indian goods and services or invest in permitted assets. Those opportunities must offer acceptable returns and access to funds when required. An exporter cannot be expected to accept inconvenient payment terms merely to advance India’s currency ambitions.
Bilateral trade need not balance exactly for rupee settlement to work. A supplier willing to invest its surplus can accommodate an imbalance. But it needs confidence that the investments are worthwhile and that conversion and repatriation rules are clear.
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Russia shows the limits of currency substitution
The Russian experience illustrates the difficulty. In May 2023, foreign minister Sergei Lavrov said Russia had accumulated billions of rupees in Indian banks and needed to convert them into other currencies. Reuters also reported that negotiations over a broader rupee settlement mechanism had stalled because Moscow was reluctant to accumulate large surpluses. This was more complicated than an agreed rupee–rouble system simply failing after implementation.
Trade subsequently used several payment currencies. In October 2025, Reuters reported that Indian Oil Corporation had paid in Chinese yuan for two or three Russian oil cargoes. The choice reflected suppliers’ payment preferences and the constraints surrounding Russian trade. It offered no assurance that the same arrangement would suit every Indian buyer or remain available indefinitely.
Rupee settlement nevertheless expanded. Calculations by The Indian Express, using RBI data, showed that India paid ₹1.38 lakh crore for imports in rupees during March–May 2026, about 7.1% of merchandise imports in those months. The publication linked the increase to higher Russian oil purchases, while describing that connection as likely. The aggregate figure should therefore not be presented as a verified total for oil payments.
These developments support a selective expansion of rupee trade. They also show why early difficulties should not be treated as permanent failure, or a subsequent increase as proof that the underlying constraints have disappeared.
Judge settlement by its commercial cost
India should retain dollar settlement where it offers the best terms and expand alternatives where suppliers can use the proceeds. Long-term supply agreements can provide a basis for such arrangements, but contracts need banks capable of executing payments and clear procedures for sanctions compliance.
Changing currencies does not remove restrictions affecting a supplier, bank or shipment. A channel that works in normal conditions may become unavailable when restrictions tighten. Refiners need to assess that possibility before depending on it.
The test should be the total cost of securing and paying for oil, including currency conversion and the risk of delayed settlement. A supplier demanding a substantial premium to accept rupees may offer a worse bargain than one accepting dollars. India should be prepared to choose the cheaper, more dependable transaction, even when that leaves its de-dollarisation statistics less impressive.