In a major development for the trade relations between India and the United Arab Emirates (UAE), both countries will now settle their crude oil transactions using their respective national currencies.
The move which could be dubbed a significant shift in international trade dynamics, came as a result of the Memorandum of Understanding (MoU) signed when Indian Prime Minister Narendra Modi visited the country last month following his trip to the United States.
According to the Indian Embassy in Abu Dhabi, the UAE’s Abu Dhabi National Oil Company (ADNOC) and Indian Oil Corporation Limited (IOCL) made their first-ever crude oil transaction in national currencies.
"The first-ever crude oil transaction under the newly implemented Local Currency Settlement (LCS) took place on Monday between the ADNOC and IOCL. The transaction involved the sale of 1 million barrels of crude oil. Both Indian Rupee and UAE Dhirams were used in the transaction," the Indian Embassy in Abu Dhabi said in a press release.
UAE is the fourth largest source of crude oil and the second largest source of LNG and LPG for India. Last year, USD 35.10 billion worth of petroleum products were traded between the two countries, accounting for 41.4 per cent of total bilateral trade, the release said.
The LCS mechanism has been established under the historic Memorandum of Understanding (MoU) on the establishment of a framework mechanism for using local currencies for cross-border transactions exchanged on 15 July 2023 in the presence of Prime Minister Narendra Modi (PM) and Mohamed bin Zayed Al Nahyan, President of the UAE and Ruler of Abu Dhabi.
This is India’s first-ever LCS and is expected to reduce transaction costs and time and increase reliance on local currencies. This will further add to the preferential terms accruing from CEPA. Traders can choose the payment currency based on mutual agreement.
Further, the surplus balance in local currencies can be used for investing in local currency assets like corporate bonds, Government securities, equity markets etc. LCS is likely to have a transformational impact not only on the bilateral economic relationship but in larger economic engagements across the world, the press release from the Indian Embassy in UAE said.
Also Read: RBI, Central Bank of UAE sign MoUs to promote local currencies, link UPI systems
