New Delhi, July 12 -- A rupee-settlement mechanism rolled out in 2022 to ease trade with sanction-hit countries has failed to gain traction with India's largest crude supplier-Russia. Indian refiners continue to source Russian crude supplies through traders based in the United Arab Emirates and settle transactions in dirhams. Most transactions for crude oil supplies are executed via West Asia-based traders rather than through a direct bilateral payment system between Indian and Russian entities, according to two people familiar with the matter, seeking anonymity. "There was a payment issue, which has been sorted out now. Payments have been happening in AED (UAE dirham) because Indian state-run refiners are primarily buying it from the traders and most of them are UAE-based," said one of the people cited above. "Also, even if the Russians give their crude oil for sale to a trader, they earmark it for a particular company. This is something specific to them. Also, the discounts on Russian oil have come down." Ajay Sahai, director general and CEO, Federation of Indian Export Organisations (FIEO), said: "While the Rouble is not freely convertible, the Dirham is both freely convertible and directly pegged to the US Dollar, offering greater ease in international transactions." For oil imports from Russia in rouble, exporters often incur losses due to the need for double currency conversion-from rupee to dollar, and then from dollar to rouble, Sahai said. Transactions in dirham eliminate this additional cost due to its convertibility and stable linkage to the dollar, he said. "Moreover, Russia has significant financial investments in the UAE, particularly in sovereign bonds and real estate. Settling export payments in Dirham allows them to accumulate a currency that aligns with their investment interests," Sahai said. India's experience shows it is difficult to make an alternative for the dollar to work because of the complexities of global trade. On top of that, US President Donald Trump has now warned Brics nations of higher tariffs if the bloc seeks an alternative to the dollar. There's no long-term crude oil supply agreement between Russian oil majors Rosneft and Indian state-run refiners like Indian Oil Corp. (IOCL), Hindustan Petroleum Corp. (HPCL) and Bharat Petroleum Corp. (BPCL). The bulk of Russian oil is being procured via spot deals through traders. "In the absence of long-term deals with state-run Indian refiners, spot purchase of oil is largely done via traders in Dubai and the payments are mostly made in AED," the person said. Russia emerged as India's top crude supplier post Ukraine invasion in 2022, as deep discount spurred demand. Russian oil's share in India's import basket surged from around 2.5% in in FY21 to 36% in FY25. However, discounts have narrowed-from about $30 per barrel in 2022 to $2.5-4 per barrel now as international oil prices have declined. Reliance Industries Ltd was the last Indian firm to sign a a 10-year crude oil supply pact with Rosneft in December 2024. Talks of a consortium of Indian state-run refiners resuming negotiations surfaced in early 2025, after fresh sanctions were imposed on some Russian oil producers and vessels. IOCL had in 2023 signed a deal to raise oil imports from Rosneft. In 2021, the company signed a deal to buy up to 2 million tonnes of crude oil from Rosneft by the end of 2022....