With the US increasingly willing to use the dollar, and SWIFT, as a strategic weapon against the country's sovereign enemies (as Iran learned every 5 or so years), Russia and India are preparing to bypass US sanctions on Moscow by using the rupee and the ruble in bilateral trade involving military deals, the Economic Times reported.
Some $2 billion in weapons deals between India and Russia have been hit as a result of the recent US sanctions, as payments get stuck. The countries are seeking to bypass such monetary bottlenecks this by switching to settlements in domestic currencies and ditching the greenback.
Senior officials told ET that after several rounds of consultations, it has become clear that a rupee-rouble transfer, pegged to the exchange rate of an international currency, is the solution. A top official said that a foreign currency, such as the Singapore dollar, could be used as the benchmark and cont .
Until now, India signed defense contracts with Russia for which payments are made in US dollars. However, as US sanctions making this virtually impossible, contractual payments have been frozen since April.
The involuntary loss of India as a Russian customer has had significant effects on the Russian economy: the Asian country is one of the largest buyers of military equipment from Russia, having signed military contracts worth $65BN since the 1960s.
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With current trade deals between the two countries estimated at around $12 billion, it is imperative for Russia to way to find a loophole to US sanctions. Furthermore, just like Turkey, India is ready to purchase Russia's state of the art S400 air-defense system in a $5-billion deal. And just like in the case of Turkey - which overnight saw the US Senate block the sale of over over 100 F-35 juts to Erdogan precisely because of Ankara's overtures to Moscow - the sale is being heavily opposed by the United States.
The two nations have been struggling to find banks that would risk US sanctions for transferring the money between the two nations. Sources said that on the Indian side, the banks being talked to include Vijaya Bank and Indian Bank, while on the Russian side, its largest banking entity in India, Sberbank, has been involved in discussions.
Other options that were looked at included payments to non-sanctioned entities in Russia after its flagship arms trading company Rosoboronexport came under sanctions by the US Office of Foreign Assets Control (OFAC).
“This option was decided against as it would have opened up a lot of legal and audit issues, especially as defence deals are looked at very closely. No one wanted to take a chance,” a top official involved in talks to resolve the issue told ET.
As part of the recent US sanctions, the US Treasury has banned business ties with entities designated as Specially Designated Nationals (SDN). After fresh notifications in April named Rosoboronexport, Indian banks were pressured into freezing all lines of credit (LoCs) to Russian arms companies, resulting in all deals coming to a halt ET reports.
Meanwhile, payments worth over $100 million were blocked in less than a month, while total payments of over $2 billion currently face uncertainty.
It was not clear if the two nations had considered "neutral" alternatives such as bitcoin, although in retrospect probably not in light of India's belligerent attitude toward the cryptocurrency, one which emerged was more prejudice than informed opinion following a report last week that India’s central bank admitted it did no research before strangling cryptocurrency payments. In light of the US crackdown on dollar use against anyone who opposes the US military-industrial complex, perhaps the RBI should have at least considered it.