Expert opinions, FINANCE

De-dollarization in Russia or alternative energy transactions in 2019

Russia is a major global oil producer, therefore it may be said that oil is the main asset of the country on an international arena. Now, Russia is launching a process of de-dollarization for its energy exports to drive the country away from the US-led global economic system and most settlements are already made in euros or Russian rubles.

Maxim Oreshkin, Russia’s Economic Development Minister, stated that Russia has chosen the path of attracting outside investors through ruble settlements aiming to minimize any exposure to the US. He also noted that Russia wants oil and gas sales “in rubles at some point.”

“The question here is not to run any excessive costs of doing it that way, but if the broad   financial infrastructure is created and the initial costs are very low, then why not?” he added.

The main goal of this economic mechanism is offsetting Russia’s exposure to US economic sanctions. Notably, the central bank has already reduced its holdings of US treasury debt from $96 bln to $8 bln over the past 18 months.

According to the minister, “EU companies, investors are buying ruble assets which are in demand in the domestic bond market, the demand’s quite extensive. It means that ruble assets are already on the balance sheet of European investors.”

With potential geopolitical tensions with the US in the background, Russia’s government is trying to find ways to minimize its dependence on the US dollar. Thus, relatively recently, Rosneft oil producer priced its September and October spot tenders in euros. Soon after, Gazprom sold to a European company its first-ever delivery of natural gas denominated in rubles.

If everything is done properly, switching to oil and gas prices in rubles will cause 2019 budget surplus of approximately 1.5% of the total GDP.

Trade with the EU

Initially, Mr Oreshkin was suggesting to invest money in a Norway-style sovereign wealth fund. Therefore, it was decided to combine the recent shift in policy with private investments.

The Kremlin also hopes to ramp up bilateral trade with the EU. That was also supported by Emmanuel Macron, the French President, who stated that they need to restore business links with Moscow after years of sanctions imposed on Russia in 2014 after its annexation of Crimea. Moreover, that would be a beneficial deal for the EU itself as it wants the Europe-originated companies like Nokia and Ericsson to compete with China’s Huawei in Russia. That is becoming especially relevant after the launch of 5G mobile communications.

Along with that, EU food producers are also hoping to return to the Russian market as a great share of their revenue was lost after imposing sanctions on Russia. However, it is unlikely that the Russian government will agree to EU food exports unless Brussels guarantees Moscow’s access to the European markets too.

According to Oreshkin, “There are also a lot of barriers on the European side with agricultural subsidies, technical regulation, which limits the access of Russian products to the European market.”

Therefore, it is still unclear how the economy of Russia will develop and which path it will choose next.

By Natalia Revishvili,

Previous ArticleNext Article