Workers walk past oil barrels at a filling station in Chennai, India on February 24, 2022. Photo: AFP

India is reportedly planning to buy Russian oil at discounted prices and even considering the Chinese yuan as a reference currency in an India-Russia payment settlement mechanism, a move that Chinese analysts say represents the growing frustration among world economies over the US-led sanctions against Russia that have rattled global markets.

The reported plans come as India has been shrugging off pressure from the US to join in its sanctions against Russia, despite growing diplomatic ties between the two countries. This also underlines a trend of countries working to seek alternatives to US-dominated global financial mechanisms to fend off risks as they have been repeatedly weaponized, analysts noted.    

One of the issues to be ironed out is in what currency the trade will be settled, and Livemint, an Indian news outlet, reported that India and Russia are exploring the possibility of using the yuan as a reference currency to value a rupee-ruble trade mechanism. The outlet cited unidentified Indian government officials.

The rupee-ruble trade mechanism will allow Indian exporters to be paid in rupees for their exports to Russia instead of dollars or euros amid sanctions against Moscow. However, there have been concerns as neither the Russian nor Indian currencies are widely used in international trade. 

Following Indian officials' consideration of using the yuan, Chinese experts also flagged the likelihood of using the yuan due to the currency's stable value and its status as the world's fourth most-traded currency after the US dollar, the euro and the pound.

Meanwhile, "Saudi Arabia is in active talks with Beijing to price some of its oil sales in yuan" instead of US dollar, Dow Jones reported on Tuesday, citing people familiar with the matter.

Countries involved in energy trading are used to using an intermediate currency, previously the US dollar or the euro, as a base to set exchange rate between two national currencies, Li Xin, director of Institute for Eurasian Studies, China National Institute for SCO International Exchange and Judicial Cooperation - Shanghai University of Political Science and Law, told the Global Times on Tuesday. 

For example, direct trades between India and Russia can use the yuan as a pricing tool to record bilateral trade in yuan, offset the trade value at the end of the year, and put the remaining balance into the next year, he added.

"The advantage of the yuan as a pricing tool lies in its stability, growing role in international settlements and payments, and the backing of China's economic strength," Li said.

The report came as payments worth some $500 million to Indian exporters for goods already shipped to Russia remain stuck as financial sanctions weigh in.

The sanctions by the US and its allies on Russia can only force Russia and countries holding other values than the US to move toward setting up a new trading mechanism, Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies at Renmin University of China, told the Global Times on Tuesday. 

"The target of the sanctions can be Russia today and any other country tomorrow. The move will further stimulate relevant countries to seek independence from the current international trade system," he said.

The reported move will allow India to get crude at discounted prices once European countries quit buying it, and offer Russia a large and emerging market.

India, the world's third-largest oil importer, is facing rising inflationary pressures at home. In February, its consumer price index rose to 6.07 percent year-on-year, an eight-month high.

Rising oil prices amid the Russia-Ukraine conflict, which have pushed up Brent to its highest level since 2008, also fueled inflationary pressure in India. On Tuesday, Brent was trading at $100 per barrel.

India, which imported to 4.2 million barrels per day in 2021, has in recent years looked to diversify its oil supplies. 

Over the years, the share of imports from the Middle East and Africa declined, and with US sanctions putting strains on crude purchases from Iran and Venezuela, the share of US and Canadian imports increased, Indian customs data showed.

Following the Russia-Ukraine conflict, the US and its European allies moved to exclude Russia from the SWIFT international payment settlement system.

Furthermore, the US and the UK announced a ban on Russian oil imports. European countries did not immediately follow, claiming that cutting Russian energy imports all at once was not practical, but they announced long-term plans to cut energy reliance on Russia.

India has been under pressure from Western countries to condemn Russia after it abstained from voting against Moscow at the UN.

Qian Feng, director of the research department at the National Strategy Institute at Tsinghua University, told the Global Times on Tuesday that a consensus has been formed in India of keeping up its trade ties with Russia despite pressure from US and its allies, and the obstacles caused by sanctions. 

Rising oil prices since the conflict have cast a shadow on the prospects for a recovery of the Indian economy from the pandemic, Qian said, noting that securing discounted oil from Russia could produce a great positive effect for India, which is in an election year.

Qian said that under the critical circumstances, the payment method, the availability of ships, insurance coverage and oil blends are all technical matters that can be ironed out.