“This is a problem,” Lavrov told reporters in India’s western state of Goa on the sidelines of the Shanghai Cooperation Organization meeting. “We need to use this money. But for this, these rupees must be transferred in another currency, and this is being discussed now.”

India’s total exports to Russia shrunk 11.6% to $2.8 billion in the first 11 months of the 2022-23 financial year, while imports rose nearly fivefold to $41.56 billion, according to data from the Ministry of Commerce and Industry. That surge came as Indian refiners have scooped up discounted Russian oil in the past year that’s been shunned by the West in response to President Vladimir Putin’s invasion of Ukraine.

Imports of Russian crude by India reached a record 1.68 million barrels a day in April, up sixfold on a year earlier, according to Vortexa Ltd, a data intelligence firm.

The Kremlin initially encouraged India to trade in national currencies following sanctions on Russian banks and a ban on transactions using the SWIFT messaging system.

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But volatility in the ruble soon after the war began meant plans for a rupee-ruble mechanism for oil imports were abandoned. India has resisted pressure from the US to scale back relations with Moscow since the invasion of Ukraine.

‘Frozen Funds’

The imbalance in trade for Russia means “the volume of ‘frozen funds’ can reach tens of billions of dollars,” said Alexander Knobel, director of the Institute of International Economics and Finance of the Ministry of Economic Development. “The situation is aggravated by India’s historically high aggregate trade deficit, which reduces the possibilities of clearing settlements with third countries.”

Russia is India’s largest supplier of weapons and military hardware, though defense supplies to the South Asian nation have stalled for lack of a payment mechanism that doesn’t violate US sanctions.

Indian payments for weapons amounting to more than $2 billion have been stuck for about a year as New Delhi has been unable to settle the bill in dollars because of concerns about falling foul of secondary sanctions, while Russia is reluctant to accept rupees for purchases.

Indian oil refiners have been trying to settle payments for discounted crude using United Arab Emirates dirhams, rubles and rupees. Trades can be exempted from international restrictions if they are priced below the $60-a-barrel price cap set by the Group of Seven nations and their European Union partners.

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Indian lenders opened special vostro accounts at Russian banks including Sberbank PJSC and VTB Bank PJSC to facilitate overseas trade in rupees and keep crude flowing.

Currency restrictions mean Russian exporters face difficulty in repatriating rupees, Bank of Russia Governor Elvira Nabiullina said on April 28.