Russia and India have suspended negotiations on bilateral trade settlement in rupees—what information does this reveal?

Summary of content: Russia, facing wartime funding shortages, plans to sell its Indian subsidiary Nayara Energy—a unit of Rosneft—valued at $20 billion. However, Western sanctions have stalled the transaction. The rupee-based settlement agreement has left Russia unable to repatriate hundreds of billions of dollars in profits earned in India; potential buyers are wary of sanctions risks, and Indian firms have explicitly refused to acquire the asset. Putin seeks to monetize overseas assets to fill fiscal gaps, but the sanctions deadlock and payment difficulties cast serious doubt on the deal’s prospects. Most people likely assume that, since Russia’s invasion of Ukraine three years ago, its overseas asset losses amount only to the $300 billion in Russian state foreign reserves frozen abroad. In fact, numerous unreported—and unknown—asset losses also exist. For instance, in Q2 2022, Putin lost Rosneft’s German assets worth over $20 billion. Now, the Kremlin may be forced to relinquish its last major overseas corporate asset. According to India’s Economic Times on March 21, Rosneft—the largest Russian oil company—is considering selling its stake in Indian firm Nayara Energy, which it acquired in 2017 for $12.9 billion. The company is now valued at nearly $20 billion. Sources familiar with the situation in New Delhi told the Economic Times that, due to Western restrictions, Rosneft has been unable for years to repatriate profits generated by its Indian subsidiary Nayara Energy—which operates 6,500 petrol stations across India and owns India’s largest non-state-owned refinery. Severe payment issues plague India–Russia oil trade: Russian exporters hold tens of billions of dollars in unpaid receivables. India insists on paying Russia in rupees under a hastily concluded local-currency settlement agreement reached in Q2 2022—but Russian accounts in India have accumulated hundreds of billions of dollars’ worth of rupees, unusable and non-convertible into U.S. dollars, renminbi, or UAE dirhams. Adding Nayara Energy’s operating profits, the total amount stuck in Russian bank accounts in India exceeds $100 billion. The two sides have negotiated for over a year without resolution. In July 2024, Putin decided to allocate $100 billion worth of these rupees to Nayara Energy, announcing an investment of up to $100 billion in India under Rosneft’s name. The Kremlin urgently needs funds to sustain its war against Ukraine, as personnel and equipment losses mount and conscription costs rise. Previously, the Kremlin covered its fiscal deficit primarily using the National Wealth Fund—holding $119 billion in liquid assets before the war. But as of 2024, with expenditures far outpacing revenues, the Fund’s liquid assets have shrunk by half, to just over $50 billion.

Has Modi bowed down? After his visit to Russia, India announced it is considering settling payments with Russia in rubles.

After Modi’s visit to Russia, tangible outcomes emerged. Recently, India’s Commerce Minister Sunil Barthwal stated that India is seeking expanded market access in Russia and encouraging both sides to launch local-currency trade settlements; an Indian government delegation is expected to visit Russia shortly. Many people are likely aware that previous India–Russia local-currency trade was conducted mainly in Indian rupees—yet this arrangement sparked repeated disputes. The reason? The Indian rupee holds virtually no international recognition: Russia cannot spend it abroad, effectively turning barrels of oil sold into piles of worthless paper. Now, India’s renewed proposal for local-currency settlement centers on using the Russian ruble instead. But given India’s track record, would it really abandon the opportunity to gain advantage? And crucially—where would India even obtain rubles to pay Russia? Today, we’ll unpack these questions. Writing this takes effort—please consider liking, sharing, and saving this article. Modi’s Russia Visit Yields Results Earlier, Modi visited Russia and received an enthusiastic welcome from Putin. No sooner had Modi stepped off the plane than Putin gave him a warm embrace. Later, Putin personally took Modi for a drive and served him tea—resembling close brothers bound not by blood but by deep camaraderie. According to Reuters, India and Russia signed over 100 contracts during this visit and jointly set a strategic target: to raise bilateral trade volume to $100 billion by 2030. What does this figure signify? Last year’s trade stood at $65 billion—a figure already nearly tripled over the past two years. In the first four months of this year alone, India–Russia trade hit a record $23.1 billion, up 10% year-on-year. Even so, the $100 billion target remains truly ambitious. Notably, despite rapid growth in recent years, India–Russia trade remains highly imbalanced. Take last year as an example: total trade reached $65 billion, yet India’s exports to Russia amounted to only $5 billion—while Russia exported $60 billion worth of goods to India. In other words, India–Russia trade consists overwhelmingly of Indian imports—mainly Russian oil, fertilizers, and coal—while Russia purchases relatively little from India. Thus, raising bilateral trade to $100 billion hinges critically on boosting Indian exports to Russia; otherwise, such expansion is unsustainable. A Mutual Endeavor India is not alone: since the outbreak of the Russia–Ukraine conflict, China–Russia trade has likewise surged dramatically. Last year, China–Russia trade exceeded $240 billion—an increase of 26.3%, far surpassing the previously set $200 billion target. Yet as Western sanctions compel Russia to pivot sharply toward China economically and diplomatically, complications arise: French President Emmanuel Macron explicitly warned Russia against becoming a Chinese vassal. But given Russia’s modus operandi, Macron may well be overthinking it—Russia’s realignment reflects pragmatism, not subservience: it’s simply a case of bowing under pressure, compelled by circumstance. Against this backdrop, Modi’s visit to Russia and the deepening of bilateral cooperation clearly represent a mutual endeavor. On one hand, India’s stance toward China is well known: it consistently views China as a strategic rival. Displacing China’s global economic position ranks among India’s top national priorities.

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