Abu Dhabi: The first-ever crude oil transaction under the newly implemented Local Currency Settlement (LCS) system took place on Monday between Abu Dhabi National Oil Company (ADNOC) and Indian Oil Corporation Limited (IOCL). The transaction involved the sale of about 1 million barrels of crude oil.

Both Indian Rupees and UAE Dirhams were used for the transaction, Indian Embassy in the UAE said in a press release.

India and UAE have a strong oil and gas relationship and the UAE is a key partner for India’s energy security. Petroleum and petroleum products form the backbone of bilateral trade between India and the UAE.

UAE is the fourth largest source of crude oil and the second largest source of LNG and LPG for India. Last year, USD 35.10 billion worth of petroleum products were traded between the two countries, accounting for 41.4 per cent of total bilateral trade, the release said.

The LCS mechanism has been established under the historic Memorandum of Understanding (MoU) on the establishment of a framework mechanism for using local currencies for cross-border transactions exchanged on 15 July 2023 in the presence of Prime Minister Narendra Modi (PM) and Mohamed bin Zayed Al Nahyan, President of the UAE and Ruler of Abu Dhabi.

This is India’s first-ever LCS and is expected to reduce transaction costs and time and increase reliance on local currencies. This will further add to the preferential terms accruing from CEPA. Traders can choose the payment currency based on mutual agreement.

Further, the surplus balance in local currencies can be used for investing in local currency assets like corporate bonds, Government securities, equity markets etc. LCS is likely to have a transformational impact not only on the bilateral economic relationship but in larger economic engagements across the world, the press release from the Indian Embassy in UAE said.

While today’s oil transaction was the second major transaction under the LCS, the first transaction took place on 15th July, the day of the exchange of the MoU. It involved the sale of 25 Kg Gold from a leading UAE gold exporter to a buyer in India invoiced at approx. 12.84 crore Rupees.