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

Russia has been utilizing cryptocurrencies to facilitate its oil trade with China and India, effectively navigating the Western sanctions imposed on the country. This strategy involves the use of digital assets such as Bitcoin, Ethereum, and the stablecoin Tether to convert funds into Russian roubles. The adaptation to financial restrictions has been ongoing since the invasion of Ukraine, with Russia passing a law last year that permits digital currency payments for international trade. This move has not been previously reported in the oil sector.

The process typically involves a Chinese buyer depositing yuan into an offshore account controlled by a middleman. The funds are then converted into cryptocurrency and transferred through multiple accounts before reaching Russia, where they are exchanged for roubles. One source indicated that some Russian oil traders process tens of millions of dollars in crypto transactions per month. Despite the increased use of digital assets, traditional methods still dominate Russia’s oil transactions, with alternatives including payments in UAE dirhams. However, crypto is expected to remain a useful tool for Russian oil traders, even if U.S. sanctions are eased.

Crypto payments help streamline transactions and mitigate delays caused by sanctions. This news echoes that of Bolivia’s state-owned energy firm, which adopted crypto for fuel imports due to a severe U.S. dollar shortage and declining natural gas production. Although not driven by sanctions, the government approved digital asset payments to sustain fuel subsidies amid falling foreign currency reserves.

The U.S. and EU have taken steps to curb Russia’s crypto-related financial channels. In 2022, the U.S. sanctioned Russian exchange Garantex, and last month, the EU followed suit. Garantex suspended services after Tether blocked its digital wallets.

While traditional currencies like the Chinese yuan and Indian rupee remain dominant, digital assets are being used to facilitate conversions into Russian roubles. This adaptation highlights Russia's resilience in the face of international sanctions, as it continues to find innovative ways to maintain its oil trade with key partners. The use of cryptocurrencies in this context not only helps in bypassing financial restrictions but also ensures the continuity of trade, which is crucial for Russia's economy.