Russia has reduced the use of the U.S. dollar and the euro in favor of the Chinese yuan as it seeks to decrease reliance on Western currencies.
According to the Russian central bank, the share of greenbacks and euros in the country’s cross-border payments has gone down to only 50 percent, more than a third since the beginning of 2022. The U.S. dollar and euro are commonly used in export and import activities.
Many Russian banks, however, are disconnected from SWIFT, the Western financial messaging system. It prevents these banks from processing certain transactions.
The share of the yuan in the Russian market increased to 33 percent in November from only three percent in March. People not only trade rubles for yuans but also a chunk of their dollars and euros for the Chinese currency. As of September, the trading volume between the ruble and the yuan had reached 39.4 billion rubles.
Russia refusing to follow Western oil price cap
Russian Deputy Prime Minister Alexander Novak announced that the country would not sell oil according to a Western price cap even if it had to cut back on production.
"We are working on mechanisms to prohibit the use of a price cap instrument, regardless of what level is set, because such interference could further destabilize the market," Novak said.
Last week, the Group of Seven (G7) and Australia agreed to implement a $60 price cap on Russian crude oil starting Monday. This decision involves prohibiting the shipments of Russian crude oil above that price cap. Insurance and reinsurance companies are not allowed to handle cargoes containing such crude oil as well.
An inside source said that the G7 was developing a decree to prevent Russian companies from interacting with companies of countries guided by G7’s cap. Russia’s oil and gas exports are among the largest sources of its foreign currency earnings. The country’s largest reserve is located in the swamps of Siberia.
Novak described G7’s recent action as a “gross interference” against the free trade concept. It is an attempt to limit Russia’s economy due to the war in Ukraine that started in February this year. According to Russian leader Vladimir Putin, the U.S. and its allies have placed economic sanctions on the country since the beginning of the war.
Novak explained that Russia, the second-largest global oil exporter, would only work with countries that agreed to the standard market conditions. He also explained that the Western cap could create issues in the market, such as a shortage of supply. Russia will not be the only entity affected by this cap.
The price difference between discounted Brent and the Russian blend has widened significantly. Urals blend traded at around $61.3 per barrel on Friday, while Brent crude traded at $85.57 per barrel in the same period.
Europe’s energy crisis
Russia is the biggest gas supplier for many countries in the European Union. The sanctions imposed on Russia by some of these countries have led to a supply cut, which is harmful to people living in those countries due to — winter when heating becomes a daily necessity.
Since Russia refused to supply gas to the European Union, country leaders have taken several measures to preserve resources. European countries introduced new energy sources, opened old gas facilities and imposed consumption control.
By mid-November, the Union had fulfilled more than 95 percent of its gas storage, above the initial target of 80 percent set in March. It enables the governments to lower the energy costs that rose significantly in the past month. However, energy experts have warned that Europe should brace for next year’s winter because it will be far worse than this year.