- Russia's amassing $1 billion worth of Indian rupees each month that it's struggling to use.
- India has been buying Russian oil using rupees as Moscow has been shut out of the USD-denominated global payments system.
Russia's oil trade with India is booming — but Moscow doesn't know how to fully reap the benefits of that trade.
Even since Russia was cut off from the US dollar-dominated global payments systems following sweeping sanctions off the Ukraine war, the two countries have used the Indian rupee for trade.
However, Russia's now having issues with trading in the rupee because there's more Indian demand for Russian goods than the other way around — meaning Russia has been saddled up to $1 billion worth of rupees each month that's stuck in Indian banks, according to Bloomberg calculations on Thursday.
And it's not like Russia can send the rupees back home either because India has restrictions over capital flows by foreign investors — the country is looking at $2 to $3 billion worth of rupees stuck in India every quarter.
That adds up to $147 billion in Russia's net foreign assets built up over 2022, per Bloomberg estimates based on Bank of Russia data.
To contextualize how big of a sum that is for Russia, the country spent 5.51 trillion rubles, or $68 billion, on defense in 2022, per a May 15 Reuters report that cites data from the country's Federal Treasury.
Russian Foreign Minister Sergei Lavrov flagged the issues with the rupee earlier this month — he told reporters in India on May 5 there was a problem with "billions of rupees accumulated in accounts at Indian banks, and we need to use this money."
"For this, rupees should be converted into other currencies. This is being discussed," Lavrov said, per Bloomberg.
India and Russia are now trying to work out how Russia can use its mounting rupee stash. Options include getting Russian entities to invest in India's capital markets, Bloomberg reported, citing officials in India familiar with details.
Another option under discussion is having Russia channel the rupees into Indian infrastructure projects in exchange for equity stakes, per the media outlet.
But in these talks, Moscow doesn't really have much bargaining power.
"There are no alternative oil importers of India's caliber on the horizon for Russia, so exporters and banks will gradually accept settlement in rupees," said Alexander Isakov, Russia economist at Bloomberg Economics.
And while India may have boosted its Russian oil purchases by taking advantage of steep discounts amid Western sanctions and boycotts, these buyers also have other options for obtaining their energy requirements, wrote Ian Hall, a professor of international relations, on the Australian Institute of International Affairs website on May 2.
"It is unlikely, however, that India will remain so dependent on Russian supplies in the medium to long term, given the relative proximity of the Middle Eastern producers on which it has traditionally relied," wrote Hall, who is also acting director of the Griffith Asia Institute at Griffith University in Australia.
The Kremlin, Russian central bank, and India's External Affairs ministry did not immediately respond to Insider's requests for comment.