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The Dominant Dollar Faces a Backlash in the Oil Market

An estimated 20% of global oil this year was bought and sold in other currencies as Russia and Iran sold cargoes to China and other buyers. Some major emerging economies are dabbling in trading commodities without using the dollar, as they seek to reduce their reliance on the U.S. currency. Faced with U.S. sanctions and other restrictions, Russia and Iran in particular have stepped up oil sales in alternative currencies, and have found buyers in China, India and elsewhere that are happy to buy these exports, often at lower prices. The need is less pressing for other commodity heavyweights. But some of these countries, including Brazil, the United Arab Emirates and even Saudi Arabia, have recently taken steps laying the groundwork for trade that sidesteps the dollar. Twelve major commodities contracts settled in nondollar currencies were announced in 2023, compared with seven in 2022 and just two in 2015 through 2021, the bank’s data shows. This year’s contracts were struck by sellers in Russia and, in one case, the U.A.E. The data relates to physical commodity deals, rather than the trading of futures in financial markets The U.A.E. and India signed a deal to trade in their own currencies, starting with a shipment of Emirati oil bought by an Indian refiner, and paid for in Indian rupees. Brazil and China completed their first local-currency commodity transaction, involving a shipment of Brazilian pulp, according to China’s state news agency, Xinhua. Saudi Arabia and China set up a roughly $7 billion currency-swap line, which the Chinese central bank said would strengthen financial ties and expand the use of local currencies. The dollar’s central role in commodities is one aspect of its broader dominance of global trade and finance. The dollar appears on one side of 88% of all trades in foreign-exchange markets. Controlling the most important currency has helped the U.S. act as the world’s watchdog because threats of exclusion from the dollar-based financial system have had significant weight. If the dollar’s dominance were to erode, that could eventually diminish this authority. Russian oil has been sold in Chinese yuan, Russian rubles, Emirati dirhams and Indian rupees, according to the Institute of International Finance. Russia became China’s top crude supplier in 2023, selling over 2 million barrels a day through July, according to S&P Global. Shipments were largely paid for in yuan. Moscow has also shifted major gas contracts to China, according to JPMorgan. Iran, which mostly sells oil to China in yuan, also has stepped up exports. Paying in a domestic currency rather than dollars lowers transaction costs, and Russian oil is cheaper than global alternatives. India has emerged as Russia’s biggest new energy customer, Kpler data shows, after New Delhi told its largest oil companies to snap up discounted Russian crude. They have paid in dirhams, yuan and rupees, according to Indian oil executives. Pakistan began paying for Russian oil shipments in the Chinese currency this year, according to JPMorgan. This move coincided with a dollar shortage in the South Asian country. China eclipsed the U.S. as Saudi Arabia’s biggest trading partner when the U.S. became more energy independent, and it has deepened political ties with Saudi Arabia. The dollar’s central role in oil markets might again prove difficult to shake. Even if Gulf countries use local currencies for transactions, the dirham and the Saudi riyal themselves are both pegged to the dollar.



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