India purchases UAE oil using rupees, potentially damaging dollar

India and the United Arab Emirates (UAE) have officially begun trading in their respective national currencies. The Indian government announced on Monday that the country’s leading petroleum refiner, Indian Oil Corp., purchased one million barrels of oil from the Abu Dhabi National Oil Company using the local rupee rather than the US dollar.

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According to Reuters, this historic transaction follows the sale of 25kg of gold from a UAE gold exporter to an Indian buyer for approximately 128.4 million rupees ($1.54 million).So, what does all of this mean for the US dollar on the global stage?

Trade talks

Last year, India’s central bank announced a new framework for settling global trade in rupees, an idea that came to fruition last month, when India, the world’s third largest oil importer and consumer, signed two agreements with the UAE.

First, the two titans agreed to settle trade in their respective currencies, in an effort to reduce transaction costs and eliminate dollar conversions. They also agreed to set up a real-time payment link to facilitate cross-border money transfers.

The agreements will enable “seamless cross-border transactions and payments, as well as foster greater economic cooperation,” according to a recent statement from the Reserve Bank of India.

De-dollarization trend

India and the United Arab Emirates are far from alone in their efforts to reduce their reliance on the dollar. In response to aggressive US sanctions and foreign policy moves, powerful nations all over the world, particularly China and Russia, are eager to dethrone the dollar.

This “de-dollarization” trend has gained such traction that some are questioning whether the dollar’s days of dominance are coming to an end. However, Treasury Secretary Janet Yellen stated that no currency can currently displace the US dollar.

Yellen’s reassurance comes on the heels of an 8% drop in the dollar’s share of global reserves in 2022. In an effort to diversify, central banks around the world have begun to abandon their dollar reserves in favor of gold.