• Russian oil traders are requesting payment in Chinese yuan from Indian state refiners, creating payment delays for several cargoes.
  • Indian government officials are resisting yuan settlements due to political tensions with China and higher transaction costs.
  • The payment dispute highlights growing pressure on India-Russia oil trade from tightening Western sanctions and price caps.

Traders selling Russian crude to Indian state-owned refiners have begun demanding payment in Chinese yuan, according to people familiar with the matter, creating fresh complications for one of the world's largest oil trading relationships.

The requests have led to payment delays for multiple cargoes, though deliveries have continued uninterrupted so far. Indian Oil Corporation, Bharat Petroleum, and Hindustan Petroleum—the state-controlled giants that account for roughly 40% of India's refining capacity—have found themselves at the center of the emerging payment dispute.

"There's clear discomfort at the government level about settling in yuan, given the border situation and broader strategic concerns," said one source familiar with the negotiations, referencing the deadly 2020 clash between Indian and Chinese troops along their disputed Himalayan border. "But the traders are pushing hard as their dollar and dirham options become more constrained."

The shift toward yuan reflects the tightening grip of Western sanctions on Russian oil exports. Recent moves by the European Union to lower the price cap on Russian crude and U.S. threats of secondary sanctions against nations continuing large-scale purchases have made traditional payment channels increasingly problematic.

Russian sellers, facing limited access to dollars and euros, have been pivoting toward "friendly" currencies, with the yuan emerging as a preferred alternative. However, the multi-currency conversions required for yuan settlements typically add 2-3% to transaction costs compared to direct payments in UAE dirhams, which have served as the primary settlement mechanism through UAE-based intermediaries.

Efforts to establish a direct rupee-rouble payment mechanism previously foundered due to trade imbalances and Moscow's reluctance to accumulate rupees. That failure has left both sides searching for workable alternatives as pressure mounts.

Indian refiners have so far managed to maintain their Russian oil imports, which account for approximately 40% of the country's crude purchases, but the payment logjam represents the most significant disruption to the trade since it expanded dramatically following Russia's invasion of Ukraine.

Government officials have not explicitly banned yuan payments but are neither encouraging nor facilitating them, according to people familiar with New Delhi's position. The resistance stems from both political sensitivities and practical economic concerns about promoting Chinese currency usage while border tensions persist.

Market participants note that without a workable payment solution, India may need to diversify its oil sourcing more aggressively or face increased procurement risks. Several Indian refiners have reportedly paused new Russian oil purchases as they work through the payment complications.

Traders involved in the negotiations suggest the yuan requests reflect practical necessity rather than political strategy. "The payment channels we've relied on are becoming increasingly difficult to use without running afoul of sanctions," said one trader, who asked not to be identified discussing sensitive commercial matters. "We're looking for stability and certainty in settlements."

As of Thursday afternoon, representatives from Indian Oil Corporation and Bharat Petroleum had not responded to requests for comment on the payment discussions.

Correction: An earlier version of this article overstated the percentage increase in transaction costs for yuan settlements. The correct range is 2-3% higher than dirham settlements.