Russia can’t find enough buyers for its oil, considers selling in bitcoin

The value of the ruble has plummeted as the country finds itself increasingly isolated from global trade in the wake of its war on Ukraine. The global oil market is dominated by the US dollar, making it hard for the country to find buyers for its oil.

Russia's difficulty in selling its oil may be the reason it is considering alternative payment methods. At a press conference this week, the chair of the State Duma's committee on energy floated the idea.

“We have been proposing to China for a long time to switch to settlements in national currencies for rubles and yuan. With Turkey, it will be lira and rubles,” Zavalny said. “You can also trade bitcoins.”

China and India have been buying cheap oil from the country as the US and other countries have barred its purchase. According to S&P Global Commodity Insights, the price of a barrel of Russia's flagship crude, Urals, is selling for $17 less than the international benchmark. The Russian federal budget is heavily dependent on oil and gas sales.

Russian President Vladimir Putin said earlier this week that he would require unfriendly countries to pay for oil and gas in rubles. European leaders buy a lot of Russian oil and gas. Both the Chancellor of Germany and the Prime Minister of Italy said that such a requirement would violate existing contracts. As recently as January, Gazprom said that nearly 100 percent of its contracts were in either currency or rubles.

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Putin's demand for payment in rubles is likely to serve two purposes. It could be an end-run around sanctions, which have focused on bank transactions rather than shipments of oil and gas. The ruble has plummeted in value against both the dollar and the euro since the start of the invasion.

Since the international banking system doesn't accept payments from the cryptocurrency, it would be possible to switch to it. It isn't a silver bullet. Over the past year, the value of the coin has gone up or down by 50 percent or more, far in excess of the ruble's decline. It could work in the Kremlin's favor, but it could also undermine Russia's economy.

David Broadstock, a senior research fellow at the Energy Studies Institute in Singapore, told the British Broadcasting Corporation that the trade of natural gas is more risky with the use of the digital currency.

Putin’s ruble demand and Zavalny’s bitcoin gambit may amount to little more than geopolitical theater. After Putin’s announcement, the ruble appreciated by 9 percent.

Payment is only part of the problem for Russian oil and gas producers. One of the biggest challenges potential customers face is figuring out how to get the oil from Russia. Shipping companies want to be paid and they don't want to be on the wrong side of international sanctions.

An anonymous source at PetroChina told S&P that fixing a ship to carry Russian barrels is one of the current problems.