Russia faces obstacles in implementing de-dollarization plan

Many Russian oil barrels are stuck at sea due to problems with alternative currency payments. Russian Bank Finance faces hurdles in implementing de-dollarization plan Tram Anh • {Published on} Many Russian oil barrels are stuck at sea due to problems with alternative currency payments.

On December 26, 2023, Reuters reported, citing two people familiar with the matter, that Russia’s shipment of Sokol-grade crude oil to India’s state-owned Indian Oil Corporation (IOC) was delayed due to payment issues. The seller is Russian state oil company Rosneft.

>> Russian Foreign Minister Sergei Lavrov: “People are tired of the dollar”

The problem was caused by the inability of Rosneft’s oil sales arm to open a bank account in the United Arab Emirates (UAE) to receive payments in UAE dirhams.

Although it is currently impossible to confirm how much Sokol oil is stranded at sea due to payment issues, the IOC was supposed to receive up to six Sokol oil shipments starting from the end of November, which was delayed until December 2023. Therefore, goods are mainly transported by sea around India and Sri Lanka.

In early December 2023, Bloomberg said that about 5 million barrels of Sokol oil were being transported from Russia to India, but the specific arrival time was unclear.

The difficulties in paying for Sokol’s oil underscore the problems of dealing with Russia at a time when it is under sweeping sanctions for launching a special military campaign in Ukraine.

India has emerged as a major buyer of Russian oil after the West imposed a series of sanctions on Moscow. However, transactions in dollars, the currency for international trade with Russia, are limited, so India insists on paying for oil transactions in its own rupee. The country worries that using the U.S. dollar could expose it to secondary sanctions, as well as buying and selling Russian rubles on the open market at fair prices.

However, Indian authorities control the rupee, and the currency is not fully convertible, meaning it cannot be easily converted into another currency. India encourages Russia to use the rupee in India itself, but Russia doesn’t have much that it wants to buy in India. This is why Russia had billions of rupees in Indian banks at the beginning of 2023.

Russian officials and oil executives have proposed an alternative that would encourage Indian buyers to pay in yuan. The currency is also controlled and not fully convertible, but Russia imports more goods from China. However, the Indian government has become increasingly uneasy about yuan transactions due to currency conversion fees and geopolitical competition between New Delhi and Beijing.

Another currency that Russia can use to trade with India is the UAE dirham, but the UAE is increasing surveillance of Russian companies.

In a recent interview with local media, Russia’s central bank governor Elvira Nabiullina acknowledged the challenges facing cross-border payments but added that the country’s economy was rapidly restructuring in response to international sanctions.

>> In oil trading, the dollar is losing market share