Russia Weapons Sales: Proof Of Limited Impact Of Western Sanctions?

EDITOR'S NOTE: Western sanctions have long been employed as a tool to exert pressure on nations like Russia, but recent events are casting doubt on their effectiveness. In a bold move that highlights the diminishing impact of US dollar dominance, Russia has forged ahead with weapon sales to India, sidestepping the need for the American currency. By using alternative currencies such as the Russian ruble, Indian rupee, euros, and UAE dirham, Russia demonstrates that it is possible to conduct business in the face of sanctions. This article explores the implications of this development, questioning the true power of the US dollar and examining how Russia's strategy may reshape the global economic landscape.

• Deliveries of Russian weapons to India have been on hold due to a currency dispute.
• The countries are in a standoff over which currencies to use, sources told Bloomberg.
• Russia is the top supplier of weapons to India, which uses the Su-30 fighter and T-90 tanks.

Deliveries of Russian weapons to India have been on hold due to a currency dispute between the two countries, sources told Bloomberg.

The standoff has frozen more than $2 billion in payments from India for about a year, while Russia has halted credit needed to purchase $10 billion in spare parts and two S-400 air-defense systems, according to the report.

The problem stems from Western sanctions on Russia for its war on Ukraine. Last year, the Kremlin's foreign-currency reserves were frozen, and Russia was shut out of the SWIFT network, effectively closing it off from the global financial system.

India won't pay Russia in US dollars over concerns that it may face secondary sanctions and won't pay in rubles because of worries about obtaining Russia's currency on global markets at a fair rate, Bloomberg said.

Meanwhile, Russia won't take Indian rupees because of exchange-rate volatility, the report added. Moscow has also rejected an idea from New Delhi for the Kremlin to invest rupees from arms payments back into Indian capital markets so the currency doesn't pile up.

Another possibility is using euros or the UAE's dirham, but that also invites the risk of sanctions and unfavorable exchange rates for India, an Indian official also told Bloomberg. Indian refiners have already been using the dirham to purchase Russian crude instead of dollars.

Officials in India and Russia didn't respond to Bloomberg's requests for comment. 

Russia is the top supplier of weapons to India, which uses the Su-30 and MiG-29 fighter jets as well as T-90 tanks, among other Russian-made arms.

Last month, India complained that Russia isn't delivering weapons it owes because it's throwing everything at Ukraine. 

Meanwhile, Russia's state-owned Rosatom had initially insisted on payment in rubles for loan payments on a nuclear power plant in Bangladesh but eventually agreed to take Chinese yuan despite concern over potential conversion losses.

Originally published by: Jason Ma on Markets Insider