Explained: How Rupee Oil Trade and BRICS Payments Pushed the US–India Partnership Toward a Strategic Rift

For much of the past decade, Washington and New Delhi projected their relationship as a cornerstone of the Indo-Pacific strategy. But beneath the surface of defense cooperation and diplomatic summits, a quieter conflict has been unfolding—one centered not on weapons or alliances, but on money, trade, and control of the global financial system.

By late 2025, that conflict had matured into what US policymakers increasingly view as a strategic rift.

The Oil Trade That Changed the Equation

The turning point began with Russia’s redirection of crude oil exports toward India following Western sanctions. Payments for this oil were increasingly settled in Indian rupees, not US dollars—a move tolerated at first as a temporary workaround.

But the scale soon became impossible to ignore.

By November 2025, India imported 7.7 million tonnes of Russian oil in a single month, representing 35 percent of total imports, with a substantial share settled outside the dollar system. For Washington, this wasn’t just about Russia—it was about India normalizing large-scale non-dollar energy trade.

RBI’s Quiet Move With Loud Consequences

For months, Russia accumulated billions of rupees it couldn’t spend. That bottleneck disappeared on August 12, 2025, when the Reserve Bank of India (RBI) authorized foreign holders of Special Rupee Vostro Accounts (SRVAs) to invest surplus funds in Indian Government Securities and Treasury Bills.

This decision fundamentally altered the dynamic.

Russian oil revenue no longer needed to flow into US Treasuries or Western markets. Instead, it was recycled directly into Indian sovereign debt, effectively financing India’s infrastructure and budgetary needs.

From Washington’s perspective, this crossed a red line. India was no longer merely avoiding sanctions—it was building an alternative financial loop that reduced US leverage.

When US Partners Joined In

Alarm deepened when India and the United Arab Emirates, both close US partners, operationalized a Local Currency Settlement (LCS) system. The Indian Oil Corporation’s payment for one million barrels of Abu Dhabi crude in rupees proved that the model worked beyond sanctioned actors like Russia.

For US strategists, this was a troubling signal:
dollar-free trade was spreading among American partners themselves.

Washington’s Retaliation

The response was swift and unmistakable. Within weeks, the United States imposed tariffs of up to 50 percent on selected Indian goods, a punitive move that marked a sharp departure from the rhetoric of strategic alignment.

The message was clear: financial divergence carried geopolitical costs.

Rupee Internationalization Accelerates

Despite the pressure, India doubled down. By late 2025, the RBI had permitted 123 correspondent banks from 30 countries, including the UK, Germany, Israel, and Singapore, to open 156 Special Rupee Accounts.

This wasn’t symbolic. It was infrastructure—designed to make the rupee usable at scale for global trade.

BRICS Bridge: The Real Breakpoint

The deepest fault line emerged as India prepared to host the 2026 BRICS Summit. Moving beyond rhetoric, New Delhi proposed the “BRICS Bridge”—a plan to link the Central Bank Digital Currencies (CBDCs) of BRICS members into an interoperable, real-time settlement system.

Built on the 2025 Rio de Janeiro declaration, the project aims to allow Russia, China, India, and new members like the UAE to settle trade instantly in digital local currencies, entirely outside US-controlled financial rails.

With the RBI actively pilot-testing the e-Rupee’s cross-border capabilities, India is effectively constructing a sanctions-resistant, digital alternative to SWIFT.

Why the US Sees a Strategic Threat

For Washington, the concern is not just about Russia or BRICS—it’s about precedent.

If India succeeds, it offers a scalable blueprint for countries seeking to trade, invest, and settle without US oversight. That challenges the dollar’s role not only as a currency, but as a tool of geopolitical influence.

This is why US officials increasingly describe India’s trajectory not as economic modernization, but as a “monetary mutiny”—a fundamental challenge to the post-Cold War financial order the US helped build.

A Partnership Under Strain

The irony is striking. Even as defense ties and Quad diplomacy continue, the financial foundations of the US–India partnership are fracturing.

What began as pragmatic oil purchases has evolved into a systemic confrontation over who writes the rules of global finance. And unlike trade disputes of the past, this one cuts to the core of sovereignty, sanctions, and strategic autonomy.

The rift may not yet be public or formal—but in monetary terms, the separation is already underway.