Russia Uses Tether for Oil Trades, Bypassing Western Sanctions

Russian oil companies have begun utilizing Tether, a stablecoin, to facilitate oil trades with China and India. This move allows for the conversion of Chinese yuan and Indian rupees into Russian roubles, streamlining the transaction process and circumventing Western sanctions. The legal framework for this change was amended in August 2024, enabling mining companies to engage in cryptocurrency transactions. This development is a response to trade disruptions caused by Western sanctions and the ongoing conflict in Ukraine.

The process involves a Chinese buyer paying a banker offshore for Russian oil, who then converts the payment into cryptocurrency and sends it to Russia, where it is converted into roubles. This method has been used for transactions worth tens of millions of dollars each month. Despite the use of cryptocurrency, fiat currency remains the primary medium for Russian oil trade. Russia has also employed other currencies, such as the United Arab Emirates dirham, for large-scale cross-border payments to bypass sanctions.

China has been cautious about cryptocurrencies, effectively banning digital assets from the mainland in 2021. However, regions like China Hong Kong have embraced digital asset innovation and become a global hub for this technology. Russia, on the other hand, has cautiously adopted crypto, creating an Experimental Legal Regime (ELR) this week. This regime allows a limited group of wealthy investors to trade cryptocurrencies for three years, indicating a growing acceptance of digital assets in the country.

Crypto-based cross-border payments in Russia constitute a small fraction of the $192 billion oil trade. However, this development demonstrates the practical use of crypto in avoiding large-scale sanctions. Other countries, such as Iran and Venezuela, have also employed similar strategies to circumvent external sanctions. The Ukraine conflict has highlighted the lack of consistency in sanctions and provided a new use case for the digital assets market. America is likely to monitor these blockchain transactions to assess their impact on traditional finance and hegemony.

Russia may emerge from this conflict as a significant contributor to digital asset technology, inspiring other nations to adopt similar means and regaining economic stability in uncertain times. Regulatory barriers continue to hinder the widespread adoption of cryptocurrency, despite its potential to enable safe, reliable, and timely cross-border trade. Russia has made efforts to adopt the BRICS payment system and use the currencies of trading partners but has continued to rely on dollars, euros, and the SWIFT standard for transactions. This exposes trading partners, like China, to the secondary effects of Western sanctions, limiting trade opportunities for both countries.

In August 2024, Russia expanded its mining regulation, requiring industrial miners to register with a government database, comply with consumption restrictions, and report ongoing operations. The regulation also included the use of Russian-mined cryptocurrency to facilitate foreign transactions, cross-border operations, and international settlements. One of BRICS’ strategies is for member states to build sovereign technological infrastructure to reduce reliance on Western technology. Russia has started embracing sovereign technologies, such as Sberbank launching a digital assets project in 2022, as part of a larger trade and global independence project.

In December 2024, a Russian lawmaker suggested using Bitcoin, due to its decentralized design, to reduce reliance on Western international finance systems. He further indicated that a Bitcoin reserve should be created, despite ongoing criticism. The recent mining legislation, which included a section on cryptocurrency, may be a vital step for Russia to adopt digital asset technology. This development may continue to evolve over the coming months and years, as Bitcoin adoption rises in popularity. The case for Bitcoin as a Russian reserve currency appeared strong in December 2024, as the digital asset continued to see market highs. Many see Bitcoin as a tool to provide an extra layer of economic resilience during uncertain times and under the constant threat of global sanctions. Russia may continue to invest in digital asset technology as Bitcoin adoption rises in popularity.