The central bank wants the country’s top state-run refiners to push Middle East oil suppliers to let them pay at least 10 per cent of their oil bills in rupees but this could turn out to be a bad deal for the Indian companies.

The Reserve Bank of India (RBI) has asked IndianOil, Bharat Petroleum and Hindustan Petroleum to shoulder some of the currency transaction burden. But the refining giants are baulking at the central bank's request, saying rupee deals will eat into their profits.

Says Viktor Katona, lead crude analyst at global trade intelligence company: “The refiners will have to bear the cost. The Russians, Saudis or Iraqis will just calculate the additional foreign exchange cost into the pricing.”

The Russians, who are swimming in rupees, will have nothing to do with the plan as they haven’t been able to spend the Indian currency they have already in their coffers, executives say. In any event, India is expected to cut back on its record Russian oil purchases due to fears of breaking stricter US sanctions on Russian energy exports imposed on the second anniversary of Moscow’s invasion of Ukraine, according to Bloomberg.

The government is keen for India to reduce its reliance on dollars for payments and is seeking to bolster use of the rupee in international trading. New Delhi points to China which has been able to pay for some of its crude oil and natural gas imports in yuan.

India is already the world’s third-largest oil buyer. Some government officials suggest that paying in dollars for India’s increasing energy demand as the economy grows will erode the value of the rupee. The Indian currency has fallen to close to Rs 83 to the dollar from nearly Rs 59 since the BJP took power in 2014. India imports 85 per cent of its crude oil needs.

But energy company officials say increasing use of renewable energy will reduce India’s fuel import bill so the pressure on the Indian currency will be less.

The RBI has also been keeping an eye on China’s efforts to persuade suppliers to accept the yuan for international oil and other payments. In 2023 Pakistan made a yuan payment for one shipload of oil. In October the Chinese also paid for one consignment of crude oil in digital yuan and it has also paid for natural gas shipments in their own currency. India has turned down suggestions that it should make payments in yuan for crude oil.

Indian refiners, however, point out that crude oil suppliers, both from Russia and the Middle East are reluctant to accept rupees. Russian foreign affairs minister Sergei Lavrov says Moscow already has billions of “trapped” rupees that “so far we cannot use”. He told reporters on a visit to Delhi last year that “this is a problem. We need to use this money, but for this, these rupees must be transferred into another currency.”

In December, the Ministry of Petroleum and Natural Gas told a parliamentary standing committee that no transactions for crude oil had taken place in rupees.

India’s petroleum usage in 2023 shot up to 231 million tonnes from 219 million tonnes in the previous year, a rise of over 5 per cent.

There are differing views about India’s crude oil demand in coming years. One prediction is that by 2030 India will be the world’s largest crude oil consumer. According to this prediction, China’s consumption will slow down because of its large-scale switch to electric vehicles and the use of solar energy but India’s oil usage will continue to grow rapidly well into the 2030s.

The oil majors, however, insist that consumption will fall by 2030 even if only to a small extent, because of the growth of electric vehicles and also solar energy.

Last year Reuters reported that the SBI was clearing payment of some crude oil consignments in UAE dirhams.