LOOPHOLE?
While the purchase did not violate Russia’s sanctions, it shows how Russia can sell commodities overseas without paying in US dollars.

According to a bill seen by Reuters and a source, the recent purchase of Russian coal by an Indian cement maker using yuan involved India’s largest private lender, HDFC Bank, as more details emerge about the type of commerce that could ease Western sanctions against Moscow.

There is no indication that the purchase, the details of which have not previously been disclosed, in any way contravenes the sanctions imposed on Russia following its invasion of Ukraine.

However, the document shows a way in which Russia could continue to sell commodities abroad without settling in US dollars, despite restrictions aimed at excluding it from financial markets.

According to the June 5 invoice and a source familiar with the matter, HDFC Bank backed cement maker Ultratech’s purchase of Russian coal from producer and trader SUEK for 172.7 million yuan ($25.75 million).

The letter of credit for the deal was issued by HDFC Bank’s Andheri East suburban branch in Mumbai, the invoice said.

The dollar is the currency of choice for global commodity trading, but some traders say the yuan could increasingly be used to settle payments for supplies from Russia.

In the invoice, SUEK instructs Ultratech to deposit the 172.7 million yuan into SUEK’s account at the Shanghai branch of China Everbright Bank. SUEK lists the Hong Kong branch of international lender HSBC as a correspondent bank.

A correspondent bank acts as an intermediary in the transfer of money from one bank to another.

Reuters could not determine whether a payment was received by China Everbright or whether HSBC or any other bank was involved in a transfer of funds.

HDFC Bank and HSBC declined to comment.

Ultratech, SUEK and China Everbright Bank did not respond to requests for comment.

The invoice did not clearly indicate which currencies were used to make the payment in yuan.

The amount quoted was quoted in Chinese yuan, and Reuters reported last week that Ultratech had imported 157,000 tonnes of coal from Swiss-registered SUEK and agreed to settle final payment in that currency.

For India, these payment methods could become more common as it seeks to maintain trade ties with Russia for commodities such as oil and coal without risking breaching Western sanctions.

India has deep political and security ties with Russia and has refrained from condemning the war in Ukraine, which Russia calls a “special military operation”.

India’s energy imports from Russia have soared recently as traders, unable to sell in many Western markets, offered deep discounts.

New Delhi defends its purchases of Russian products, saying they are legal and that a sudden halt would further inflate prices and hurt consumers.

Greater use of the yuan to settle payments could help shield Moscow from sanctions and bolster Beijing’s efforts to further internationalize the yuan and reduce the US dollar’s dominance in global trade.

However, it is still rare for an Indian company to agree to settle a transaction with a non-Chinese company in yuan. Absent sanctions, payments abroad to Russian commodity and energy companies would typically be made in dollars via SWIFT to Russian accounts.