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Russia and Iran have launched an oil-for-goods exchange program seeking to eliminate bilateral payments in U.S. dollars and plan to keep it going for five years, RT reports citing Energy Minister Alexander Novak, who added that the first Iranian cargo of crude oil had been received by Russia.
The idea about ditching the greenback from bilateral trade was first pitched in 2014 when Iran was still under Western sanctions. Even after the notorious deal was reached, the two countries decided to go ahead with it, and the preliminary agreement was reached last year. According to it, Russia will receive 100,000 bpd of Iranian crude in exchange for US$45 billion worth of Russian goods.
Iran has been actively looking for ways to drop the dollar as an international trade currency because of the U.S. sanctions that still remain, and because of the fear that more may be on the horizon.
Earlier this month, Tehran announced it will publish all its official financial reports in euro instead of dollars in a bid to encourage a switch to euros from dollars among state agencies and businesses.
In March, Iran banned purchase orders denominated in U.S. dollars and said that any merchant using dollars in their orders will not be allowed to conduct the import trade. A senior central bank official at the time explained that, “Considering that the use of the dollar is banned for Iran and traders are literally using alternative currencies in their transactions, there is no longer any reason to proceed with invoices that use the dollar as the base rate,” noting that “It’s been for a long time that Iran’s banking sector cannot use the dollar as a result of the sanctions.”
Russia is also willing to reduce its dependence on the U.S. currency for similar reasons: sanctions and lack of access to Western financial markets. Iran is a natural partner, a sanction buddy of Moscow—their partnership will only deepen if the U.S. reimposes sanctions on Tehran.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.