Abu Dhabi National Oil Company (ADNOC) and Indian Oil Corporation Limited (IOCL) have successfully conducted the inaugural oil transaction in local currency on Monday, following the implementation of the Local Currency Settlement (LCS) system. India's leading refiner, IOCL, made the payment in rupees for the acquisition of one million barrels of oil. This development comes in the wake of another transaction involving the sale of 25 kg of gold from a UAE gold exporter to an Indian buyer, amounting to around 128.4 million rupees ($1.54 million), as reported by Reuters.
According to a statement by the Indian Embassy in the UAE, both Indian Rupees and UAE Dirhams were utilized for the transaction. The bilateral relationship between India and the UAE has a strong foundation in oil and gas trade, with the UAE serving as a significant partner in India's energy security.
UAE ranks as the fourth largest supplier of crude oil and the second largest source of LNG and LPG for India. The report by ANI highlights that the petroleum products trade between the two nations amounted to USD 35.10 billion last year, contributing to 41.4 percent of the total bilateral trade.
The Local Currency Settlement (LCS) system was established under a historic Memorandum of Understanding (MoU) signed on July 15, 2023, in the presence of Prime Minister Narendra Modi and UAE President Mohamed bin Zayed Al Nahyan. The system is anticipated to streamline transactions by reducing costs and time while facilitating transactions in local currencies. It is also expected to leverage the benefits of the Comprehensive Economic Partnership Agreement (CEPA), providing flexibility in choosing payment currencies and allowing the use of surplus local currency balances for investments in various local currency assets.
The press release from the Indian Embassy in the UAE underlines that while the crude oil transaction is a significant first, the LCS system's initial use was witnessed in the sale of 25 kg of gold from a prominent UAE gold exporter to an Indian buyer, invoiced at approximately Rs 12.84 crore. This development is set to have a transformative impact not only on bilateral economic ties but also in broader global economic engagements.