Russia Uses Cryptocurrencies to Bypass Sanctions in Oil Trade with China, India

Russia has started using cryptocurrencies to facilitate its oil trade with China and India, effectively bypassing Western sanctions. This move involves the use of digital currencies such as Bitcoin, Ethereum, and stablecoins like Tether’s USDT. The process typically begins with a Chinese buyer depositing Yuan into an offshore account controlled by an intermediary. The funds are then converted into cryptocurrency and transferred through multiple accounts before reaching their final destination in Russia, where they are exchanged for Rubles. This method simplifies the conversion of Chinese Yuan and Indian Rupees into Russian Rubles, enabling smoother transactions despite financial restrictions.

This strategic shift is driven by Western sanctions imposed over Russia’s military actions, which have accelerated the country's adoption of digital assets. These assets offer efficiency and transaction speed, making them an attractive option for circumventing financial restrictions. Industry sources suggest that even if sanctions are lifted, oil firms may continue using cryptocurrencies due to their advantages.

Russia has developed multiple payment systems to navigate sanctions, and crypto is one of several tools the country uses. Fiat currencies remain the primary method used in Russia’s oil transactions, and other workarounds include using currencies such as the United Arab Emirates dirham. The country is also looking to get its largest banks to support a digital ruble for retail and commercial use. The Bank of Russia has previously stated that a ruble-backed central bank digital currency could be used as a tool against sanctions.

However, the Central Bank Digital Currency (CBDC) project, known as the digital ruble, is facing significant hurdles. Last month, Central Bank Governor Elvira Nabiullina announced an indefinite delay in the launch of the digital ruble, citing the need for further refinements to ensure that the currency benefits all stakeholders. The delay was attributed to the inadequate IT infrastructure of banks expected to handle the project. A survey of Russian banking experts revealed that 30% of financial institutions are not yet prepared to support the digital ruble. Experts explained that implementing the CBDC requires banks to upgrade their IT systems to handle increased transaction volumes. Meanwhile, 20% of banking IT specialists stated that their systems are fully equipped for the digital ruble, while another 50% said they are partially prepared but need further upgrades. Around 14% of the respondents expressed concerns over potential information security risks associated with the currency. Given these challenges, Russia’s national digital asset initiative could face further obstacles unless major financial institutions fully prepare for its adoption.