Smoke and mirrors? —
Move could work in the Kremlin’s favor—or further undermine Russia’s economy.
Tim De Chant
Russia’s economy is in shambles, and the value of the ruble has plummeted as the country finds itself increasingly isolated from global trade in the wake of its war on Ukraine. The country is even having a hard time finding buyers for its oil, in part because the global oil market is dominated by the US dollar.
Russia’s difficulty in selling its oil might be why it is considering alternative payment methods, including bitcoin. Pavel Zavalny, chair of the State Duma’s committee on energy, floated the idea at a press conference this week, the BBC reported.
“We have been proposing to China for a long time to switch to settlements in national currencies for rubles and yuan. With Turkey, it will be lira and rubles,” Zavalny said. “You can also trade bitcoins.”
The change would reportedly apply only to countries that Russia feels are “friendly.” Recently, China and India have been scooping up cheap oil from the country as the US and other countries have barred its purchase. The price of a barrel of Russia’s flagship crude, Urals, is selling for $17–$33 less than a barrel of Brent crude, the international benchmark, according to S&P Global Commodity Insights. The Russian federal budget is heavily reliant on oil and gas sales.
Russian President Vladimir Putin said earlier this week that he would require “unfriendly” countries to pay for oil and gas in rubles. That demand was quickly shot down by European leaders, who buy a significant amount of Russian oil and gas. Both German Chancellor Olaf Scholz and Italian Prime Minister Mario Draghi said that such a requirement would breach existing contracts, which typically specify that the currency should be in euros or dollars. Indeed, Gazprom has said as recently as January that nearly 100 percent of its contracts are in either currency, not rubles.
Putin’s demand for payment in rubles likely serves two purposes. One, it could be an end-run around sanctions, which have focused on bank transactions rather than shipments of oil and gas. And two, it would help boost the flagging ruble, which has plummeted in value against both the dollar and the euro by 25 percent since the start of the invasion.
Switching payment to bitcoin would be another way to circumvent sanctions since the cryptocurrency doesn’t flow through the international banking system. Still, it isn’t a silver bullet. The cryptocurrency has had a volatile several years, with its value swinging by 50 percent or more over the past year, far in excess of the ruble’s 25 percent decline. That could work in the Kremlin’s favor, but it may just as easily further undermine Russia’s economy.
“Clearly, accepting Bitcoin, compared with other traditional currencies, introduces considerably more risk in the trade of natural gas,” David Broadstock, a senior research fellow at the Energy Studies Institute in Singapore, told the BBC. “Moreover, one of the major ‘friendly’ trade partners for Russia is China, and cryptocurrency is banned for use in China.”
Putin’s ruble demand and Zavalny’s bitcoin gambit may amount to little more than geopolitical theater. After Putin’s announcement, the ruble appreciated by 9 percent.
Yet payment is only half the problem for Russian oil and gas producers. One of the biggest challenges that potential customers face is figuring out how to get the oil from Russia. Shipping companies like to be paid, too, and they don’t want to risk getting their ship impounded if they find themselves on the wrong side of international sanctions.
“One of the current problems is fixing a ship to carry Russian barrels,” an anonymous source at PetroChina told S&P, “as not many shipowners are willing to take the risk.”