Rosneft Switches Export Contracts to Euros from Dollars Amid U.S. Sanctions

Rosneft Switches Export Contracts to Euros from Dollars Amid U.S. Sanctions

Written on 10/30/2019
by Warsaw Institute


Russia's largest oil company Rosneft has fully switched to the euro from U.S. dollars as the default currency to minimize its exposure to U.S. restrictions, Rosneft CEO Igor Sechin said. This is not shocking because Russia ships as much as half of its whole oil exports to the European market, though U.S. dollar transactions prevail globally.

Rosneft is the biggest oil exporter from Russia, trading around 2.4 million barrels per day. Speaking at the Eurasian Economic Forum in Verona, Rosneft CEO Igor Sechin, whom many consider one of Russia's most prominent businessmen and politicians, announced his firm's plan to ditch the U.S. dollar for the euro. Following some statements from the Russian government in September, Rosneft was seeking euros as the default option in a bid to gradually sail away from the U.S. dollar. The United States has not ruled out introducing restrictive measures on Rosneft over its involvement in trading oil from Venezuela. The Russian oil firm has been reselling the crude from the Latin American country to buyers in China and India, thus offering vital help to Venezuela and its state-run oil company PDVSA, enabling these two to trade oil despite U.S. sanctions. Currently, the share of the U.S. currency in the global oil and oil products trade is around 90 percent. But Sechin argued that the yuan could raise its share from the current 2 to 5 percent. The Chinese currency could become much more important globally in the future because of Chinese economic growth, Rosneft CEO said. Sechin stated that U.S. growing impact on the European banking system would lead to a slump in its efficiency while running the risk for the euro that may not become a global reserve currency. Russian market analysts say Russia sends half of its oil output to the European Union. With the euro as the base currency, Russian energy firms will no longer need intermediaries to conduct their transactions. Therefore if Russian oil producers seek to import European-made equipment, the switch to the euro from the dollar will reduce currency conversion fees. But there is another reason behind Rosneft's decision. Russia expects that with a prospective "hard" Brexit, the European single currency will lose considerable to the dollar, a move that will enhance Rosneft's financial figures. Sechin's company followed suit of Russian privately held gas firm Novatek that earlier had abandoned the dollar for similar reasons. In July 2014, the United States blacklisted the firm while barring any domestic legal entities and natural persons from allowing loans to Novatek. Rosneft currently uses the euro as the base currency for most of its export contracts.