A fifth of global oil trade this year was settled in currencies different from the U.S. dollar as countries such as Russia and China move away from the petrodollar.
This is according to JP Morgan’s head of global commodities strategy, Natasha Kaneva, who spoke to the Wall Street Journal and said sanctions have been a major motivator for Russia and Iran to start doing their oil business in non-dollar currencies.
“The U.S. dollar is getting some competition in commodities markets,” Kaneva said, just a day after news broke that Russia and Iran have agreed to completely stop using the U.S. dollar in bilateral trade.
Indeed, some analysts have argued that the barrage of sanctions that the U.S. leveled on Russia is causing other countries to consider ditching the dollar as a way of insulating themselves from the effect of potential sanctions.
“This is something other countries are increasingly concerned about,” William Jackson, chief emerging-markets economist at Capital Economics, told the WSJ.
“Some are seeking to reduce their risk of possible sanctions on the use of dollars in trade. China is trying to act as a geopolitical counterweight.”
Yet sanctioned oil producers are not the only ones eager to ditch the dollar. China has also been active in replacing dollars in international trade with its own currency, which it seeks to make more global.
Earlier this month Nikkei Asia reported that the Chinese yuan had become the fourth most popular currency in international settlements in November, overtaking the Japanese yen. The report explained the development with the more active trade between Russia and China.
A month earlier, in October, China also completed the first cross-border payment for oil in digital yuan. Before that, state-owned oil companies made several oil and gas purchases paying for them in the Chinese currency rather than dollars.
Per JP Morgan data, there were 12 major commodity contracts that were settled in currencies different from the greenback this year, the WSJ reported, adding that this compared with seven such deals in 2022 and two in the period between 2015 and 2021.
Among the 2023 deals were one between the UAE and India for crude oil deliveries to be paid for in rupees, and another—a currency swap line—between Saudi Arabia and China worth $7 billion.