Bank of Baroda said to Stop Clearing Payment for Above-Cap Russian Oil

India’s Bank of Baroda (BoB) has reportedly stopped clearing payments for Russian oil sold above the price cap set by Western nations. Know more about this development in this article. This topic is relevant for the Indian economy section of the UPSC syllabus.

Bank of Baroda stops clearing payment for above-cap Russian oil

• Beginning April 2023, the Bank of Baroda (BoB) has ceased processing payments for Russian oil that surpasses the price limit established by Western nations.
• Using Bank of Baroda, certain Indian refiners were paying Dubai-based traders in United Arab Emirates dirhams for Russian low-sulfur crude oil priced beyond the $60-per-barrel restriction. This action may accelerate the shift towards a rupee-based trade system.
• In 2022, the Group of Seven economies, the European Union, and Australia established a price limit to prevent Western services and shipping from trading Russian oil, unless it is sold at a reduced price to withhold funds for Moscow’s Ukraine conflict. 
• India established a mechanism to settle its worldwide trade transactions in rupees in 2022. As a result, a few Russian banks opened Vostro accounts with Indian banks to simplify rupee-based trade. However, this has not begun yet.
• The CEO of the Russian oil company Rosneft explored opportunities to enhance collaboration with India across the hydrocarbons value chain. This included examining the option of using national currencies for payments.

Implications of this development

• Difficulties in settling trade payments for Russian oil may prompt sellers to consider accepting rupee payments, particularly for barrels that exceed the price limit.
• Shifting to rupee payments would aid in transitioning Russia away from the dollar and also benefit India by conserving foreign exchange.
• This action may accelerate the shift towards a rupee-based trade system.

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