Russia can’t find enough buyers for its oil, considers selling in bitcoin

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The sun sets beyond an oil pumping unit, also known as a pumping jack, at a drilling site operated by Tatneft OAO near Almetyevsk, Russia.
Enlarge / The sun sets beyond an oil pump­ing unit, also known as a pump­ing jack, at a drilling site oper­at­ed by Tat­neft OAO near Alme­tyevsk, Russia.

Andrey Rudakov/Bloomberg

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.”

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