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Russia Sets Path to Overcome Sanctions

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Russia has set several goals for its oil and gas industry to stay competitive as it copes with sanctions and an escalating economic war with the West. They relate to import replacement of Western technologies and expertise, infrastructure development to accommodate shipments of Russian hydrocarbons shunned by the West to alternative markets in the East and South, and cutting reliance on the dollar and euro in global trade. The price cap on Russian oil planned by G7 countries has also added urgency to construction of a bigger tanker fleet and establishment of a new national insurance company. Likewise, a freeze on Russia's $300 billion-plus in foreign currency reserves after the Feb. 24 invasion of Ukraine has elevated the push to move away from the dollar and euro, although efforts started earlier after a round of Western sanctions in 2014. Russia has made at least some progress in coping with sanctions in most areas, but the most visible success has been in de-dollarization. Gazprom and China National Petroleum Corp. (CNPC) agreed last week to switch payments under their long-term pipeline gas supply agreement to rubles and yuan. Russia and Turkey had previously agreed on partial payment in rubles for supplies of Russian gas. Rosneft placed 15 billion yuan ($2.2 billion) in 10-year bonds this week. Russian oil exporters are already using yuan and United Arab Emirates' dirham in contract settlements, and Russia's finance ministry is considering issuing sovereign bonds denominated in yuan. Russia sees the yuan as the best international currency on which to rely. This makes sense considering robust trade between Russia and China, which reached $93 billion in the first seven months of this year after registering at $140 billion in 2021.

Topics:
Sanctions, Policy and Regulation, Upstream Technology, Refining, Low-Carbon Policy, Ukraine Crisis
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