Energy company Gazprom moving Russia away from petrodollar

RT reported on March 26 that Russia is continuing to make great progress in putting an end to its dependence on American dollars when it comes to energy.

Energy giant Gazprom could become the first Russian company to exclude the US dollar from its foreign trade operations. It aims to switch to Russian rubles and other national currencies in payments for energy supplies.

Gazprom’s Deputy Chairman Andrey Kruglov told reporters that one of the world’s largest gas companies is already settling contracts in national currencies, namely in rubles and yuan, when supplies are exported to China.

Gazprom is ready to launch large-scale gas supplies to the Chinese market via the ‘Eastern Route’ (the Power of Siberia pipeline) as early as December 1, 2019. The Russian energy giant has a 30-year contract for the supply of an annual 1.3 trillion cubic feet of natural gas via the pipeline.

Gazprom’s CEO Alexey Miller said Russia and China have also agreed to get approval for gas supplies via the ‘Western Route’ in the shortest possible time.

Demand for Russian gas supplies is increasing in China, and, according to Miller, by 2035 it could reach 80-100 billion cubic meters a year. The transition to settlements in national currencies will greatly facilitate Russia-China trade as a whole, which has already hit $100 billion record mark and is expected to reach $200 billion by 2024.

Moscow and Beijing are drafting a pact to increase the use of the ruble and the yuan in bilateral and international trade. The countries aim to cut reliance on the US dollar to avoid sanctions targeting financial transactions. The plan is to launch a new cross-border system for direct payments in national currencies.

The sides have been successfully implementing the terms of the ruble-yuan currency swap agreement, clinched in 2014 to boost trade using national currencies and eliminate dependence on the dollar and euro. The deal was extended at the end of 2017.

This news may be part of the reasoning behind recent strengthening of the Russian Ruble, presently trading at 64.35 to the dollar. A few weeks ago the ruble was about 67 to the dollar. While still heavily impacted by wave after wave of economic sanctions that have impacted the Russian Federation since 2014, the government has largely taken the sanctions in stride, preferring to take measures to internally strengthen the Ruble rather than worry about appeasing the designs of the West.

A companion article also run on RT describes more about the ruble-yuan currency swap agreement, as both countries seek to evade Western sanctions being applied against their respective economies:

Moscow and Beijing are drafting a pact to increase the use of the ruble and the yuan in bilateral and international trade. The countries aim to cut reliance on the US dollar to avoid sanctions targeting financial transactions.

The plan is to launch a new cross-border system for direct payments in national currencies. Discussions are underway to allow the use of China’s UnionPay credit card in Russia and Russia’s Mir card in China, according to Russian Prime Minister Dmitry Medvedev, who visited China this month.

“No one currency should dominate the market, because this makes all of us dependent on the economic situation in the country that issues this reserve currency, even when we are talking about a strong economy such as the United States,”Medvedev said.

He added that US sanctions have pushed Moscow and Beijing to think about the use of their domestic currencies in settlements, something that “we should have done ten years ago.”

“Trading for rubles is our absolute priority, which, by the way, should eventually turn the ruble from a convertible currency into a reserve currency,” the Russian prime minister said.

Russia and China have been successfully implementing the terms of the ruble-yuan currency swap agreement, clinched in 2014 to boost trade using national currencies and eliminate dependence on the dollar and the euro. The deal was extended at the end of 2017.

Trade turnover between the countries has grown significantly to $77 billion, up by 30 percent from January to September this year.

China is Russia’s largest trading partner, accounting for 15 percent of Russian international trade in 2017. The countries expect bilateral trade to hit $100 billion this year and plan to steadily boost it to $200 billion by 2024.

Last year, nine percent of payments for supplies from Russia to China were made in rubles; Russian companies paid 15 percent of Chinese imports in yuan. Three years ago, those numbers were two and nine percent, respectively.

By all indications, this action is showing up in the remarkable stability of the Russian economy despite the massed political and economic pressures being applied against it. It would seem that the way Russia is countering US sanctions is the most long-term strategic possible method: to gradually make such sanctions irrelevant by being free of the dollar.