Russia-China Move Away from U.S. Dollar in Oil and Gas Trade

On August 27, the Russian business daily, Kommersant, reported that Gazprom Neft will be exporting 80,000 tons of oil from the Arctic oil field, Novoportovskove, and accepting payment for these exports only in rubles.  It also announced that it will be accepting payment for oil delivered to China via the Eastern Siberia-Pacific Ocean Pipeline (ESPO) in rubles or Chinese yuan.  Moscow and Beijing have long discussed moving away from the U.S. dollar (the so-called petrodollar) in the settlement of oil and gas sales/purchases.  These announcements appear to be among the most significant in terms of this becoming a reality, at least for transactions between these two countries.  News that shipments of oil from Novoportovskoye that left for Europe during the week of August 18, with an expected arrival in September, were arranged to be paid for in rubles demonstrates that the movement away from the dollar may also impact on Russian energy importers (i.e., Russia requiring its broader customer base, not just China, possibly including more vulnerable neighbor states, to settle payments in its preferred currency).  Although the move is being attributed by some as linked to U.S. sanctions, Moscow and Beijing have been critical of the dominant position held by the U.S. dollar as the world’s premier reserve currency for a long time.  No doubt, however, the current sanctions policies and the reaction by the market to those policies, has added urgency to this cooperative initiative.