In an effort to boost bilateral trade and reduce reliance on the US dollar, India has settled its first-ever crude oil payment to the United Arab Emirates (UAE) in local currency, according to a statement by the Indian Embassy in Abu Dhabi on 14 August.
The deal was facilitated under the ‘local currency settlement’ (LCS) system between state-owned Abu Dhabi National Oil Company and the Indian Oil Corporation. The transaction involved the sale of around one million barrels of crude oil for an undisclosed sum, involving both Indian rupees and UAE dirhams.
The deal is the second transaction under the LCS. The first deal took place in July, and involved the sale of 25kg of gold from a leading UAE gold exporter to a buyer in India for around Rs128.4m ($1.5m), the statement noted.
In July, India and the UAE signed an agreement to promote the use of local currencies in bilateral trade. Both nations also pledged to establish an instant payment link to process cross-border transactions and money transfers more efficiently.
Diplomatic and trade ties between New Delhi and Abu Dhabi have increased in the past few years. The UAE is India’s fourth-largest source of crude oil and second-largest source for liquefied natural gas and liquefied petroleum gas.
The Arab world’s second-largest economy has also been pursuing its own independent trade agreements, bypassing the Gulf Cooperation Council, the Saudi Arabia-led political and trade bloc.
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The UAE signed its first Common Economic Partnership Agreement with India in February 2022, after launching negotiations in August 2021. The agreement enables greater access for UAE exports by reducing or removing tariffs on more than 80% of products. The pact aims to generate $100bn of bilateral trade within five years.