Russia is considering replacing the U.S. dollar in crude oil payments on deals with Turkey and Iran, Energy Minister Alexander Novak said as quoted by RT.
According to Novak, “There is a common understanding that we need to move towards the use of national currencies in our settlements. There is a need for this, as well as the wish of the parties. This concerns both Turkey and Iran – we are considering an option of payment in national currencies with them. This requires certain adjustments in the financial, economic and banking sectors.”
Iran, under threat of returning U.S. sanctions, two months ago decided to ditch the greenback as a currency in its imports. A directive from the Ministry of Industry, Mine and Trade ordered traders to stop placing import orders in U.S. dollars. The argument in defense of the move was that Iran has no access to dollar transactions because of the sanctions, and removing it as an import payment currency would make life easier all around.
The country has emerged as a strong ally of Russia, especially as the two share the pain of sanctions. Last November, RT recalls, Ayatollah Ali Khamenei urged President Vladimir Putin to join him in quitting the dollar as a transaction currency and replacing it instead with national currencies to “isolate the Americans.” Related: Saudi Officials Worried About Oil’s Future
Iran’s quest against the dollar also last year resulted in a bilateral deal between the central banks of Iran and Turkey to trade in national currencies. Russia is currently in negotiations with Tehran to do the same, although there are skeptics who believe switching from the greenback to national currencies is easier said than done.
Also, the advent of cryptocurrencies could facilitate the move away from the dollar as an international oil trade settlement currency, one analyst said recently. In a December 2017 note, Stephen Brennock from PVM Oil Associates said cryptos could help commodity-producing countries to switch from dollar to cryptocurrencies to reduce their dependence on the greenback. At the same time, he said, it would curb their exposure to dollar movement risks and the effects of sanctions, which typically feature cutting off access of the target country to international funding.
By Irina Slav for Oilprice.com
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Since then Russian President Putin has been orchestrating moves against the US dollar and the petrodollar in cooperation with China culminating in the launching of the petro-yuan in on the 26th of March 2018. Putin would like nothing more than to sabotage the petrodollar, and he’s forging alliances across the world that he hopes will help him achieve his goal.
Back in 2015, the first of a number of strikes against the petrodollar was dealt by Russia. Gazprom Neft, the third-largest oil producer in Russia, decided to move away from the dollar towards the yuan and other Asian currencies. Iran followed suit the same year using the yuan with a host of other foreign currencies in trade, including payment for Iranian oil.
Furthermore, Russia and China have stepped up their alliance to a level where the Russian ruble became an acceptable tender at many places in China. A more significant development was Russia agreeing to some yuan-based oil trade in 2015.
With the petro-yuan a reality now, major oil exporters finally have a viable way to circumvent the petrodollar system altogether.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
So let them play their games. If companies and countries are willing to hold mostly other currencies other than dollars they will be the ones holding an empty bag when the music stops.
Even if there didn't exist any oil and oil trade, the domination of dollar wouldn't go away automatically because it is based on the Bretton-Woods agreement and the corresponding institutions created thereby that made the US dollar a monopolistic tool of world trade settlement.
When China starts selling pork to Brazil say, in euro, and Brazil will be selling condoms for euro to India etc etc, then it will become reality. But for that alternative agreements and institutions are needed. China is working on this, but it is a separate thing that is not directly related to oil.
The US Treasury and MBS markets trade $500 billion and $300 billion daily. That is 10x the next most-liquid domestic bond market globally.
When PIMCO or SWFs want to park $20 billion overnight or over a weekend, they aren't giving it to Putin or the Chinese. Or Iranian mullahs.