New Delhi: In a groundbreaking development that marks a significant step towards enhancing bilateral economic ties, the Abu Dhabi National Oil Company (ADNOC) and the Indian Oil Corporation Limited (IOCL) completed the first-ever crude oil transaction under the newly implemented Local Currency Settlement (LCS) system. The transaction involved the sale of approximately 1 million barrels of crude oil, with both Indian Rupees (INR) and UAE Dirhams (AED) being used for settlement.


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A statement from the Indian mission in the United Arab Emirates said, "LCS is likely to have a transformational impact not only on the bilateral economic relationship but in the larger economic engagements across the world."


The LCS mechanism was established as a result of a Memorandum of Understanding (MoU) exchanged during Prime Minister Narendra Modi's visit to the UAE last month.


This agreement is expected to significantly reduce transaction costs and time, while also promoting the use of national currencies for cross-border transactions.


The LCS mechanism provides traders with the flexibility to choose the payment currency based on mutual agreement. Additionally, the surplus balance in local currencies resulting from transactions can be invested in various local currency assets such as corporate bonds, government securities, and equity markets.


This innovative approach is set to have a transformative impact on not only the economic relationship between India and the UAE but also on broader economic engagements across the world.


While the oil transaction between ADNOC and IOCL is the second major exchange under the LCS, the first transaction involved the transaction involving gold. This earlier transaction involved the sale of 25 kg of gold from a prominent UAE gold exporter to a buyer in India, with the invoice totaling approximately Rs 12.84 crore.


This successful gold transaction demonstrated the feasibility and efficiency of the LCS mechanism. 


Petroleum and petroleum products constitute a major portion of bilateral trade between the two nations. Last year alone, the trade in petroleum products amounted to a staggering US$ 35.10 billion, accounting for 41.4% of the total bilateral trade volume.


The UAE stands as the fourth-largest source of crude oil and the second-largest source of LNG and LPG for India.