India is exploring a significant shift in its trade payment strategy with Gulf countries, considering settlement of transactions in local currencies instead of global benchmarks. The move comes amid ongoing geopolitical uncertainties, with the government aiming to contain the rising import bill, particularly for crude oil and other essential commodities. Officials indicated that discussions are underway to identify feasible mechanisms to implement this approach.
The proposal gains urgency as crude prices surge due to tensions in West Asia, with Brent crude rising from around $70 to nearly $110 per barrel. As India relies on imports for nearly 85% of its crude oil needs, the increase is expected to significantly inflate the import bill, with potential ripple effects on the trade deficit and inflation.
Government data shows that about 28% of India’s oil imports in 2024–25 came from Gulf nations. In this context, officials believe that adopting local currency trade settlements could help reduce the burden of rising import costs, cushion the impact of global volatility, and strengthen overall economic stability.