Russia has begun leveraging cryptocurrencies to facilitate oil trade with China and India, circumventing Western sanctions, according to a report from Reuters on Friday, citing four sources with direct knowledge of the matter.
Regulatory Shifts and the Role of Crypto in Trade
In August 2024, Russia passed legislation regulating cryptocurrency mining, providing clarity after years of uncertainty. The country has also reportedly tested cross-border crypto payments as an alternative to the U.S. dollar for settling international transactions.
Initially resistant to cryptocurrencies, the traditionally conservative Russian Central Bank has gradually softened its stance, acknowledging their potential utility in international trade. This month, the bank launched an experimental legal framework allowing “highly qualified” investors to trade cryptocurrencies, though it stopped short of recognizing them as legal tender.
Crypto Transactions in the Oil Sector
The Reuters report is the first to suggest that Russia is actively using cryptocurrencies in its oil trade. According to the report, undisclosed Russian oil firms are employing Bitcoin, Ether, and stablecoins such as Tether to streamline currency conversions between Chinese yuan, Indian rupees, and Russian rubles.
Although cryptocurrency transactions currently account for a small fraction of Russia’s overall oil trade, their usage is reportedly increasing. Other sanctioned nations, such as Iran and Venezuela, have already turned to cryptocurrencies to bypass reliance on the U.S. dollar for energy transactions.
A Reuters source familiar with the operations of a Russian oil trader estimated that crypto transactions with China could reach “tens of millions of dollars per month.”
Mechanism of Crypto-Facilitated Trade
A typical transaction, as described by Reuters sources, involves a Chinese buyer of Russian oil making payments in yuan to an offshore account managed by an intermediary trading firm. This intermediary then converts the funds into cryptocurrency, transferring them through multiple accounts before finally converting them into rubles in Russia.
Sanctions and the Search for Alternative Payment Systems
The tightening grip of U.S. sanctions has significantly impacted Russia’s trade, leading even Turkish and Chinese banks to distance themselves from Russian financial dealings in 2024 due to concerns about secondary sanctions. The Kremlin has been actively exploring alternative payment mechanisms, though even the adoption of the Chinese yuan has proven insufficient. Last year, the Russian Central Bank acknowledged that sanctions-related payment delays had become a major economic challenge.
Further complications arose this week as U.S. President Donald Trump allowed the expiration of the U.S. Treasury’s Office of Foreign Assets Control (OFAC) General License 8L, which had previously enabled foreign firms to process payments for Russian energy exports via sanctioned banks. This development could further hinder Russia’s ability to settle energy transactions, potentially driving greater reliance on cryptocurrencies.
Future Prospects: BRICS Pay Digital Currency
At the 2024 BRICS summit in Kazan, President Vladimir Putin introduced the concept of BRICS Pay, a digital currency envisioned as a means of settling commodity trades among BRICS nations. However, analysts suggest that the practical implementation of this currency remains several years away.
As Russia continues to navigate its sanctions-induced economic challenges, the role of cryptocurrencies in facilitating international trade is likely to expand. Whether this trend will be sustainable in the face of evolving global financial regulations remains to be seen.
