Indian state-owned refineries are expected to keep paying only in UAE dirhams for Russian crude oil transactions, even in the face of mounting international pressure brought on by new EU sanctions and severe warnings from US President Donald Trump. Unveiled in mid-July, the EU’s latest sanctions package has increased limitations and significantly lowered the price cap on Russian oil purchases. According to officials, these actions are unlikely to immediately disrupt India’s current system because purchases are made through Emirati trade partners rather than Russia directly.
Over recent months, the dirham-based payment mechanism has become the norm for Indian Oil Corporation (IOCL), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL). Indian refiners are routing oil deals through UAE-based intermediaries, sidestepping both the US dollar and other currencies after limited success in establishing a rupee-rouble payment structure with Moscow. This approach has gotten stronger as the dollar becomes more difficult to use due to increased international scrutiny and the possibility of secondary Western penalties.
According to a top refinery official, the shift away from US dollars was already in motion before to the most recent tightening of sanctions. Direct dollar payments were first made to Russian businesses like Rosneft, but as foreign banks and clearinghouses became increasingly cautious about handling dollar-denominated Russian transactions, they were progressively replaced by dirham payments.
Rising Geopolitical and Economic Risks:
The payment workaround is taking shape as President Trump not only imposed a fresh 25% tariff on Indian exports to the US but also warned of unspecified penalties that could be linked directly to New Delhi’s ongoing energy and defense ties with Russia. Trump’s rhetoric has included statements accusing India of profiting from purchasing discounted Russian oil, often reselling refined products to global markets for a profit. Adding further uncertainty, Trump has threatened to escalate penalty tariffs or even secondary sanctions if Russia’s war in Ukraine does not de-escalate within a reduced time frame.
Despite these threats, Indian officials have publicly maintained that the country’s energy security policies prioritize national interests above political pressure. Private discussions inside the Indian government acknowledge that while the risk of secondary sanctions or other punitive actions is real, upending the dirham-based payment approach is not immediately on the cards—at least until there’s a concrete government directive.
One high-ranking official emphasized that ongoing oil deals are secured through long-term agreements and are essential for managing India’s energy security. Abruptly halting Russian oil imports or switching from dirhams to another currency could prove deeply disruptive, both logistically and economically.
Russian Oil Still Key to India’s Energy Strategy:
Since the onset of the Ukraine war in 2022, Russia has risen to become India’s largest crude supplier, now accounting for roughly 35-40% of its total imports. The reliance on Russian supplies surged because of steep discounts and technical compatibility with Indian refineries, yielding attractive refining margins for companies operating in a volatile global oil market.
Despite discounts having recently narrowed, officials say state-run refiners intend to stick with the established payment and sourcing routines. They have also not pursued fresh alternatives, abandoning earlier consideration of the rupee, dollar, or even Chinese yuan for Russian oil transactions. From the perspective of commercial strategy, these refiners see little incentive to alter a working model unless sanctions enforcement or government policy clearly necessitate it.
Recent data shows that, although July saw a drop in India’s daily Russian oil imports, this was attributed mainly to routine refinery maintenance and seasonal demand rather than international threats or sanctions. Experts point out that, even with relentless Western criticism, a complete disengagement from Russian crude seems commercially improbable without an official policy shift from New Delhi.
Prospects and Challenges:
Indian refiners will continue to be impacted by global geopolitics in their daily operations as the US rhetoric heats up and the EU tightens sanctions. All signs, however, suggest a practical strategy in which the UAE dirham will continue to be used for established payment methods unless required by law or an unexpected external shock causes them to alter.
India’s response reflects a standard balancing act in foreign policy and energy economics. New Delhi’s resolve is to keep sourcing affordable crude to ensure domestic energy stability while continuing to manage its Western diplomatic engagements. Though the scenario remains fluid—with the threat of additional penalties or tariffs casting a long shadow—the existing dirham-based system appears resilient for now. Indian state-run refiners are set to continue their dirhams-only payment policy for Russian oil in the face of new EU curbs and US threats, carefully treading the line between global pressure and national interest.
