Russia is turning to cryptocurrencies in its oil dealings with China and India as a strategy to combat Western sanctions.
Even though traditional currencies such as the Chinese yuan and Indian rupee continue to be the primary options, digital currencies like Bitcoin (BTC), Ethereum (ETH), and the stablecoin Tether (USDT) are now being utilized to facilitate conversions to Russian roubles, according to well-informed sources.
Since the onset of financial restrictions following the invasion of Ukraine, Russia’s $192 billion oil trade has been evolving. The country enacted legislation last year that allowed for digital currency payments in international trade, but its application within the oil industry had not previously been reported.
Using cryptocurrency for payments helps to streamline transactions and reduce delays that stem from sanctions.
This situation parallels that of Bolivia’s state energy company, YPFB, which has also embraced cryptocurrency for fuel imports amidst a significant shortage of U.S. dollars and declining natural gas output. While not directly tied to sanctions, the Bolivian government has endorsed digital asset payments to continue supporting fuel subsidies in the face of dwindling foreign reserves.
Transactions worth tens of millions of dollars
The typical crypto transaction process in the oil trade involves a Chinese buyer depositing yuan into an offshore account managed by an intermediary.
These funds are then converted into cryptocurrency and transferred through multiple accounts before arriving in Russia, where they are exchanged for roubles. One insider noted that several Russian oil traders handle tens of millions of dollars in crypto transactions each month.
Despite the growing adoption of digital currencies, conventional methods still play a significant role in Russia’s oil trade, with alternatives such as payments in UAE dirhams also being utilized.
Nonetheless, cryptocurrency is anticipated to remain an effective instrument for Russian oil traders, even if U.S. sanctions are relaxed.
Both the U.S. and EU have taken measures to restrict Russia’s access to crypto-related financial avenues. In 2022, the U.S. imposed sanctions on the Russian exchange Garantex, followed by the EU taking similar action last month. Garantex subsequently halted its operations after Tether blocked its digital wallets.