The first-ever oil transaction in local currency has taken place between Abu Dhabi National Oil Company (ADNOC) and Indian Oil Corporation Limited (IOCL) on Monday, since the implementation of Local Currency Settlement (LCS). India's top refiner made the payment in rupees for the purchase of a million barrels of oil, news agency Reuters reported.
This comes after the transaction involving the sale of 25 kg gold from a UAE gold exporter to a buyer in India at about 128.4 million rupees ($1.54 million), the report added
UAE is the fourth largest source of crude oil and the second largest source of LNG and LPG. According to the ANI report, India and UAE traded USD 35.10 billion worth of petroleum products last year, which accounted for 41.4 per cent of total bilateral trade, the release said.
According to ANI, the LCS system was established under the historic Memorandum of Understanding (MoU) on the establishment of a framework mechanism for using local currencies for cross-border transactions exchanged on July 15, 2023 in the presence of Prime Minister Narendra Modi (PM) and UAE President Mohamed bin Zayed Al Nahyan.
It is expected to reduce the transaction costs and time as well as increase local currencies. LCS is further expected to add the preferential terms occurring from the Comprehensive Economic Partnership Agreement (CEPA). Traders can now choose the payment currency based on mutual agreement. The surplus balance in local currencies can be used for investing in local currency assets like corporate bonds, Government securities, equity markets etc.
LCS is likely to have a transformational impact not only on the bilateral economic relationship but in larger economic engagements across the world, the press release from the Indian Embassy in UAE said.
While the crude oil transaction was a first, but since LCS was put in place the first ever transaction was the sale of 25 Kg Gold from a leading UAE gold exporter to a buyer in India invoiced at approx Rs 12.84 crore.