Indian companies still buying Russian oil using dollars

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Indian companies still buying Russian oil using dollars

Indian companies are still buying Russian oil using dollars after Dubai's Mashreq Bank refused to handle payments from at least two refiners in Emirati Dirhams, as requested by the supplier, according to three sources familiar with the matter.

Russia has been hit by sanctions from the United States and allies after its invasion of Ukraine, and Moscow has requested buyers of its commodities to pay using roubles or other currencies rather than the dollar and euro, which is typically priced in its contracts.

In July, traders supplying Russian oil had asked at least two Indian companies to settle in Dirham. An invoice from one of the refiners shows that oil payments were calculated in dollars while payment was requested in dirhams.

Payments to Gazprombank were made via Mashreq Bank, its correspondent bank in Dubai, according to the invoice.

Mashreq has a branch in New York, according to its website. The dirham payments did not go through because Mashreq didn't facilitate the trade, according to three sources. Reuters was unable to establish why.

The U.S. Treasury, Mashreq Bank and Gazprombank didn't respond immediately to requests for comment.

The payments were eventually handled by the Abu Dhabi branch of the State Bank of IndiaBank of India and settled in U.S. dollars, according to one of the sources.

The United Arab Emirates and India have avoided criticism of Russia's actions in Ukraine, which Moscow calls a special military operation and have not imposed sanctions.

India's central bank has put in place a mechanism to facilitate international trade in rupees, a move seen as helping business ties with Russia in case of more stringent Western sanctions against Moscow. The new rules mirror the barter-like system used in Iran when it was sanctioned, where Indian importers deposited rupee payments in the vostro account of Tehran's commercial banks with India's UCO bank, a state-owned lender.

A vostro account is one that a local correspondent bank holds on behalf of a foreign bank.

Iran used the funds to pay for imports of non-sanctioned goods from India.

UCO Bank has been approved by India's central bank to open a special rupee account for Russia's Gazprombank, and its chief executive Soma Sankara Prasad told Reuters that it hopes to do so soon.

In order to make trade more attractive, India has also allowed foreign banks to invest excess funds in government securities as special rupee accounts don't offer interest on deposits.

In April-August this year, Indian imports from Russia hit $17.24 billion, a rise from $3.2 billion a year ago, according to government data.

Western sanctions have prompted many oil importers to shun Moscow, pushing spot prices for Russian crude to record discounts against other grades.

Indian refiners, which rarely bought Russian oil due to high freight costs, had an opportunity to snap up exports at hefty discounts to Brent and Middle East staples.