India firms swapping US dollar for Asian currencies to buy Russian coal

PM Modi with Putin

Indian steelmakers and cement manufacturers have purchased Russian coal using dirham, Hong Kong dollar, yuan and euro in recent weeks, according to Reuters news agency, circumventing Western sanctions against Moscow.

Indian companies are using Asian currencies more often to pay for Russian coal imports, according to customs documents and industry sources, avoiding the US dollar and cutting the risk of breaching Western sanctions against Moscow.

Indian steelmakers and cement manufacturers have bought Russian coal using the United Arab Emirates dirham, Hong Kong dollar, yuan and euro in recent weeks, according to customs documents separately reviewed by the Reuters news agency.

The yuan accounted for 31 percent of the non-US dollar payments for Russian coal in June and the Hong Kong dollar for 28 percent. The euro made up under a quarter and the Emirati dirham around one-sixth, the data from the trade source showed.

The Reserve Bank of India has approved payments for commodities in the Indian rupee, a move it expects to boost bilateral trade with Russia in its own currency.

India has aggressively stepped up purchases of Russian oil and coal since the conflict in Ukraine began, helping to cushion Moscow from the effects of sanctions and allowing New Delhi to secure raw materials at discounts compared to supplies from other countries.

Russia became India's third-largest coal supplier in July, with imports rising by over a fifth compared with June to a record 2.06 million tonnes.

Non-dollar transactions for Russian coal

The US dollar has been the dominant currency for Indian commodity imports, traders said, and the greenback makes up most of the country's foreign exchange reserves.

For deals in a currency other than the dollar, lenders would potentially have to send dollars to bank branches in the country of the original currency, or banks they have tie-ups with, in exchange for that currency to settle the trade.

Two traders based in India that purchase coal for domestic customers and a trader based in Europe who deals with Russian coal said they expected the share of non-dollar transactions for Russian coal to increase as banks and other parties explore ways of cushioning themselves against any further tightening of sanctions.

Reuters was able to corroborate customs documents for four of the 11 vessels in the summary of Russian coal trades in June provided by the trade source, which showed payments made using the yuan, euro and the Emirati dirham, using ship-tracking data and by speaking to a private customs agent based in India.

Another three vessels in the 11 deals in the trader's summary were paid for using the Hong Kong dollar and the yuan, two trade sources familiar with the transactions confirmed.