Russian Oil Companies' Efforts to Receive Euros Instead of Dollars from Western Buyers

On Friday, November 9, Reuters reported that major Russian energy companies are pressuring their Western customers to use euros instead of dollars. The report states that seven major Russian energy companies are attempting to impose penalties on customers in new contracts for 2019 in case they withdraw due to U.S. sanctions. According to the report, major Western companies and chambers of commerce buying Russian oil have disagreements over the terms of oil sales contracts for 2019 with Gazprom Neft and Surgutneftegas, and their negotiations have not yet reached an agreement. These two companies are the third and fourth largest oil producers in Russia. Earlier this week, trade sources announced that as new U.S. sanctions against Russia disrupt buying and selling processes, Rosneft has informed its Western oil buyers that starting in 2019, they will face penalties if they do not pay for the oil purchased. This report comes less than a week after AFP reported on Russia's efforts to avoid using the dollar in its economy. The agency stated that 'soon' the Minister of Economy and Finance and the Central Bank of Russia will unveil a series of measures aimed at using other foreign currencies instead of the U.S. dollar. According to informed sources, Surgutneftegas and Gazprom Neft are currently facing issues with their customers regarding penalties for unpaid amounts and the use of euros instead of dollars in transactions. One source, who requested anonymity, told Reuters: 'This is part of the same trend. The Russian oil industry is trying to mitigate the risks of new sanctions. Although customers say they cannot bear these risks, we will still try to find a solution.' In recent months, officials from the Central Bank of Russia have designed a specific payment system to escape Western banking and financial sanctions, especially from the U.S., known as the 'Russian SWIFT.' On Thursday, Maria Zakharova, spokesperson for the Russian Foreign Ministry, described the 'uncertainty of Western behavior and its financial systems' as the reason for creating the Russian SWIFT (SPFS). According to the Russian Foreign Ministry spokesperson, 'The West has repeatedly tried to expel certain countries from the currency and financial payment system due to competition, which is very concerning for many countries, including Moscow.' According to Zakharova, pursuing trade and monetary exchanges with other countries based on the use of common currencies is another strategy for Russia to counter U.S. sanctions. Iran is also among the countries under U.S. sanctions that is trying to conduct its trade relations with its economic partners using currencies other than the U.S. dollar and with the common currencies of the parties involved. In recent weeks and months, following the escalation of discussions regarding the implementation of U.S. sanctions against Iran, it has been decided that trade exchanges with countries such as Russia, Turkey, China, and India will be conducted using their currencies. In this context, the spokesperson for the Russian Foreign Ministry stated that next week he will hold a press conference to provide detailed information about Russia's financial cooperation with Iran. Pressuring sanctioned countries through cutting off banking and monetary services and limiting international monetary and banking exchange systems has been one of the common methods of the U.S. in recent years. On Thursday, Steven Mnuchin, the U.S. Treasury Secretary, announced the complete cutoff of access for the Central Bank of Iran and U.S.-sanctioned financial institutions to the SWIFT interbank exchange network. Elvira Nabiullina, the head of the Central Bank of Russia, recently stated that all conditions are in place for Russian banks to continue operating if Russia is removed from the SWIFT system. According to Olga Skorobogatova, deputy head of the Central Bank of Russia, as of a month ago, 416 prominent Russian companies and institutions, including the Federal Treasury, Gazprom Neft, and Rosneft, have joined this Russian financial exchange system or Russian SWIFT. Russia has been under U.S. and EU sanctions since 2014, following its attack on Ukraine and the annexation of Crimea, with these sanctions continuously expanding to include new companies and sectors, making it difficult for Russian oil companies to obtain foreign loans.