President Vladimir Putin has called for greater use of the ruble in Russian oil deals and criticized continued use of the U.S. dollar.
The Russian leader spoke out on Tuesday and proposed the move which appears to be aimed at strengthening the severely weakened Russian currency while also reducing the country’s dependence on the dollar, according to RT.
Putin tries to end reliance on dollar in trade deals
Due to tumbling world oil prices the ruble has lost almost half of its value against the dollar in the past 12 months. Oil is Russia’s main export, but the country has also suffered due to Western sanctions imposed after the Ukraine conflict and a sharp economic downturn at home.
The idea that oil deals should be paid for in rubles and other non-dollar currencies such as the Chinese yuan have been proposed by Russian officials in the past. The idea is to reduce Russia’s reliance on the Western financial system.
“I would like to mention one crucial issue in the development of the energy industry, and the economy as a whole. It is a question of finally stopping the use of foreign currency in internal trade,” said Putin at the fuel and energy presidential commission on Tuesday.
Government ministers ignoring dollar deals in internal trade
On Tuesday Putin had some harsh criticism for government officials he accused of willfully ignoring continued payments in dollars in the domestic oil trade.
“Mr. Siluanov (Russian Finance Minister), aren’t settlements in foreign currencies prohibited by [Russian] law? And what do we have in practice? Fees for shipment of oil products and crude oil in the Russian ports of Novorossiisk, Taman, Ust-Luga, Kozmino, Primorsk and others – are either directly priced in US dollars, or denominated in US dollars on online trading systems, practically in real time,” asked the President.
“This is, of course, unacceptable. It directly contradicts current legislation. I don’t understand what the regulatory authorities are looking at,” Putin added.
Deals in place with trade partners for use of national currencies
Looking beyond internal trade, Putin stressed that international payments should also be made in currencies other than the U.S. dollar. “We need to seriously consider strengthening the role of the ruble in settlements; this also includes Russian fuel and energy products. We also need greater use of national currencies in transactions with the countries which are our active trading partners,” the President said.
Russia, Belarus, Armenia and Kazakhstan, all of which are members of the Eurasian Economic Union (EEU), have already committed to switching to their national currencies. Officials in Iran have also stated that they will use national currencies in transactions with Russia.
Moscow has also written to Vietnam, Indonesia, Turkey and Egypt to propose similar systems. At the same time Russia has banned imports of food products from Europe, the US, Canada and Australia in retaliation for Western sanctions.
Foreign companies have been forced to withdraw from Russia due to the sanctions, which have also prevented Russian firms from accessing international capital. A combination of factors mean that Russia has been suffering a severe economic contraction that has seen millions of ordinary Russians fall back into poverty.
Russia left scrambling after sharp economic downturn
The so-called economic war rumbles on but it seems as though Russian initiatives will be quite difficult to implement. The government could certainly insist that domestic oil trades be carried out in rubles, but ensuring that international trade deals do not use the greenback will be far more difficult and could discourage other nations from trading with Russia.
Shut out of Western markets, Moscow has attempted something of a pivot to the east by engaging in closer relationships with China. So far efforts to drive the use of the ruble and the yuan in bilateral trade have borne little fruit.
Another potential area for regional growth is the Shanghai Cooperation Organization, a regional grouping dominated by China and Russia which aims to drive economic growth in Asia. Unfortunately for Putin and Russia things are not progressing as quickly as they would like.
Although Russia is suffering, it does not seem to have affected President Putin’s popularity at home. According to polls the Russian strongman regularly enjoys approval ratings of over 80%, perhaps because of a sophisticated propaganda campaign that has effectively painted him as the only option for Russia.
However ongoing economic difficulties may impact Russia’s ability to act in certain areas or project its military power far from home as it is currently doing in Syria. Putin appears to be acting on borrowed time and must surely be hoping for an improvement in the economic situation.