Russia to Shun Dollar, Adopt Other Currencies in Oil Trade

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Russia will strive to end payments in US dollars for oil exports and instead use Chinese and Emirati currencies as soon as possible, Energy Intelligence has learned. Oil industry sources claim exporters have been urged to accelerate the transition and begin as early as next month.

The game-changing switch, which has been ongoing for years in a bid to mitigate growing sanctions risks, has acquired additional urgency as of late. The issue was discussed at a strategic Jul. 26 session of the government on energy industry chaired by Prime Minister Mikhail Mishustin, sources say.

Importantly, Moscow doesn't need as many dollars for imports, many of which are banned under Western restrictions, and this will help facilitate the transition to new currencies.

The government is also devising a new budget rule envisaging the use of currencies of friendly countries by the Central Bank for the latter's currency interventions. This would help prevent further gains by the ruble.

Changing Patterns

Moscow has some experience in currency-swapping. In 2019, Russia moved to euros for oil supplies to China National Petroleum Corp. (CNPC) under long-term contracts via the East Siberia-Pacific Ocean pipeline, according to industry insiders familiar with the matter.

Now, however, given that euros make little sense for Russian external trade balances, oil exports to CNPC will be fully paid in Chinese yuan this year.

Reuters reported last week that trading firms used by state-controlled major Rosneft for supplies to Indian refiners started asking for the dollar equivalent in dirhams this month.

Russia was mulling the use of Indian rupees in oil sales settlements, but government officials decided the country didn't need such large sums of the Indian currency for external trade, sources say. They claim that Moscow wanted to use yuan in deals with the Indian customers as well, but this didn't pass well with the latter.

But Western buyers of Russian oil say payment settlements continue as usual, mainly in euros. They doubt that the switch to yuan would work with these Western stalwarts. Technically, it is possible, but nobody wants the additional headache of cross-currencies rates, sources say.

Ruble Taming

Russia's Central Bank is expected to start buying currencies of friendly countries to influence the exchange rate of the dollar and euro and thus soften the hyper-strong ruble. In expectation of such a policy, demand for yuan on the Russian market has grown to historic levels.

The chief of the Central Bank, Elvira Nabiullina, said last week that Russia would stop supplying oil to countries that introduce a price cap for its volumes, echoing the statements by other officials. "Our crude and oil products will re-orient to those countries that are ready to cooperate with us," Nabiullina said at a briefing on Jul. 22.

Redirecting energy exports to Asia-Pacific but keeping trade ties with friendly countries on traditional markets was also discussed at the energy session chaired by Prime Minister Mikhail Mishustin.

Another core objective will be stimulating internal demand through the development of petchems, gas grid expansion and using gas as motor fuel, the prime minister said.

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