The imposition of U.S.-led international sanctions on Russia is causing a shift away from the dollar’s dominance in international oil trade. Russia’s primary outlet for seaborne crude is India, the world’s third-largest importer of oil. The sanctions, combined with the turmoil in Ukraine, are providing strong evidence of a move towards other currencies. India has been paying for most of its Russian oil in non-dollar currencies, such as the United Arab Emirates dirham and more recently, the Russian rouble, following the oil price cap imposed by a coalition opposed to the war.
The oil transactions in the last three months total the equivalent of several hundred million dollars, which is a shift that has not previously been reported. Some Dubai-based traders and Russian energy companies are seeking non-dollar payments for certain niche grades of Russian oil that have been sold above the $60 a barrel price cap. These sales represent a small share of Russia’s total sales to India and do not appear to violate the sanctions. The sources asked not to be named because of the sensitivity of the issue.
Moscow is seeking to de-dollarise its economy, and traders are trying to avoid sanctions. Three Indian banks backed some of the transactions. However, continued payment in dirhams for Russian oil could become more challenging after the United States and Britain added Moscow and Abu Dhabi-based Russian bank MTS to the Russian financial institutions on the sanctions list. MTS had facilitated some Indian oil non-dollar payments. Neither MTS nor the U.S. Treasury immediately responded to a Reuters request for comment.
An Indian refining source said most Russian banks have faced sanctions since the war, but Indian customers and Russian suppliers are determined to keep trading Russian oil. The source believes that Russian suppliers will find some other banks for receiving payments. The Indian government has not asked them to stop buying Russian oil, so they are hopeful that an alternative payment mechanism will be found in case the current system is blocked.
The dollar’s dominance in international trade has been periodically called into question. However, it has continued due to the advantages of using the most widely accepted currency for business. This shift away from the dollar in oil trade is the strongest evidence so far that it could prove lasting. The sanctions imposed on Russia, combined with the turmoil in Ukraine, are causing a shift away from the dollar’s dominance. The shift away from the dollar is not limited to oil trade; it is occurring in other industries, such as finance.
The shift away from the dollar could have long-lasting consequences. The dollar’s status as the world’s reserve currency has been unchallenged for decades. However, the shift away from the dollar could result in its decline as the dominant currency for international trade. The dollar’s decline could result in higher costs for U.S. companies doing business overseas. The shift could also result in a decline in the value of the dollar, which would make imports more expensive and could lead to inflation.
The shift away from the dollar’s dominance in international oil trade is providing strong evidence that it could prove lasting. India’s shift towards other currencies following the imposition of sanctions on Russia and the turmoil in Ukraine is causing a shift away from the dollar. The consequences of the shift away from the dollar could be significant and could result in higher costs for U.S. companies doing business overseas and a decline in the value of the dollar. The shift away from the dollar is not limited to oil trade and is occurring in other industries, such as finance.
