Buying Saudi oil in rupees is good for the currency, the import bill won't be cheaper
Buying Saudi oil in rupees is good for the currency, the import bill won't be cheaper
After 50 years, Saudi Arabia has decided to accept currencies other than the dollar for the oil it sells. However, even if India—the world's third-biggest oil consumer—gets to pay for the imported oil in rupees, it may not result in any significant savings in the near term beyond the reduced dependence on the dollar. Here's why.
The Saudi currency, the Riyal, is pegged to the dollar. Therefore, the cost of the oil would be calculated in dollar terms, even if the final payment is in another currency like the rupee.
However, it will have some other benefits over the long term. The two countries, India and Saudi Arabia may settle bilateral trade in their respective currencies.
According to data from the Centre for Monitoring Indian Economy and the Bank of Baroda, at the end of December 2021, Saudi Arabia accounted for about 16.6% of India's crude oil imports.
Soon after, New Delhi chose to pile on the cheaper oil from Russia in the wake of the war with Ukraine. Settling in Riyal/Rupees may also lead to a step forward in what Shaktikanta Das, the Governor of the Reserve Bank of India, described as the 'internationalisation of the rupee' at Davos in January 2024.
After cracking a deal with Russia for trade settlement in rupees and roubles, albeit with challenges, India had been pushing other countries like the United Arab Emirates and China to exchange the respective currencies instead of the US dollar.
In August 2023, India made the first rupee payment for oil bought from the UAE.
Saudi Arabia's move to end a 50-year-old petrodollar agreement, which mandated that the US dollar would remain the sole currency for global crude oil transactions, is still historic.
It aligns with the steps many countries took to reduce reliance on the US dollar after the sanctions on Russia showed the kind of leverage America wielded over other nations.
Volatility in other currencies, triggered by increasing US interest rates, also added to countries' concerns. In 2023, a fifth of the global oil trade was reportedly settled in non-USD currencies.