On Monday, Abu Dhabi National Oil Company (ADNOC) and Indian Oil Corporation Limited (IOCL) conducted the first crude oil transaction ever under the recently introduced Local Currency Settlement (LCS) system. The sale of roughly 1 million barrels of crude oil was a part of the deal.
According to a press release from the Indian Embassy in the UAE, both Indian Rupees and UAE Dirhams were utilised in the transaction.
The UAE is an important partner for India’s energy security and the two countries have a robust oil and gas cooperation. The mainstay of bilateral trade between India and the UAE is oil and petroleum products.
UAE is India’s second-largest supplier of LNG and LPG, as well as its fourth-largest supplier of crude oil. According to the press release, petroleum products accounted for USD 35.10 billion in trade last year, or 41.4% of all bilateral trade.
The historic Memorandum of Understanding (MoU) on the establishment of a framework mechanism for using local currencies for cross-border transactions, signed on July 15, 2023 in the presence of Prime Minister Narendra Modi (PM) and Mohamed bin Zayed Al Nahyan, President of the UAE and Ruler of Abu Dhabi, established the LCS mechanism.
This will be the first-ever LCS in India, and it is anticipated that it will speed up transaction times, cut costs, and increase the use of local currencies. This will increase the benefits of CEPA’s preferential terms even more. Based on mutual agreement, traders might decide on the payment currency.
Additionally, the local currency surplus balance can be used to buy local assets such as corporate bonds, government securities, equities markets, etc. According to a press release from the Indian Embassy in the UAE, LCS is anticipated to have a transformative effect on not only the bilateral economic relationship but also on wider economic interactions worldwide.
The exchanging of the MoU took place on July 15th, and today’s oil trade was the second significant transaction under the LCS. It involved the sale of 25 kg of gold to a buyer in India from a reputable UAE gold exporter, with an invoice value of roughly 12.84 crore Rupees.