Amidst a backdrop of warming diplomatic ties between New Delhi and Beijing, Indian state refiners are reportedly resuming payments for Russian oil in Chinese yuan. This move marks a notable shift in payment mechanisms and reflects the evolving geopolitical landscape.
Sources indicate that traders offering Russian oil have begun requesting Indian state refiners to settle transactions in yuan. This is perceived as an opportunity to streamline deals with Indian buyers, capitalizing on the improved relations between India and China.
India's top refiner, state-controlled Indian Oil Corp (IOC), has already made payments in yuan for two to three cargoes of Russian oil, according to individuals familiar with the transactions. While IOC has not yet commented on the matter, this development signifies a potential change in the dynamics of India's oil trade with Russia.
Western sanctions imposed on Russia following its invasion of Ukraine in 2022 have spurred the use of alternative currencies, including the yuan and the UAE dirham, for settling oil trades, which were historically dominated by the US dollar.
In 2023, some Indian state refiners experimented with yuan payments for Russian oil. However, this practice was discontinued due to the Indian government's reservations during a period of heightened tensions with Beijing. Private refiners, however, continued to use the Chinese currency. Now, traders are seeking to eliminate a costly step by directly receiving yuan, which can be directly exchanged into roubles needed to pay the producers. Previously, they had to convert payments in dirhams or dollars into yuan. Sources also suggest that Russian oil is still being priced in dollars to adhere to the European Union's price cap, with the equivalent amount then being paid in yuan.
Since Western nations began suspending imports from Moscow due to sanctions, India has emerged as the top importer of discounted Russian seaborne oil. The increased use of yuan for payments is expected to expand the availability of Russian oil for Indian state refiners, particularly as some traders are unwilling to accept other currencies.
This development occurs against the backdrop of improving relations between India and China. Direct flights between the two countries have recently resumed after a hiatus of more than five years. Furthermore, Indian Prime Minister Narendra Modi recently visited China for the first time in seven years to attend a meeting of the Shanghai Cooperation Organisation (SCO) regional security bloc. During this meeting, Modi and Chinese President Xi Jinping affirmed that India and China should be viewed as development partners rather than rivals, signaling a commitment to stabilizing relations and exploring avenues for deeper economic cooperation.
Despite these positive developments, some analysts point out existing trade imbalances between the two countries. In fiscal year 2024–25, China was India's second-largest trading partner. However, India's trade deficit with China increased to US$99.2 billion out of a total bilateral trade worth US$131.84 billion.
Even with the warming of relations, India has been carefully balancing its energy security needs with broader diplomatic and trade engagements. Despite pressure from the United States, India continues to import significant volumes of Russian oil. In September 2025, approximately one-third (33.8%) of India's oil imports came from Russia.
The resumption of yuan payments by Indian state refiners for Russian oil underscores the intricate interplay of economic interests, geopolitical considerations, and evolving currency dynamics in the global energy market. While challenges and complexities remain, the move signifies a notable step towards greater diversification and resilience in India's energy procurement strategies.
