Russia Should Trade Her Oil for Gold Rather Than US Dollars

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Russia Should Trade Her Oil for Gold Rather Than US Dollars

It’s high hime Russia sets her own oil rules

A way to escape petro-dollar hegemony?
Originally appeared at Izvestia. Translated by Julia Rakhmetova and Rhod Mackenzie
The author is a professor at the Moscow Higher School of Economics, one of Russia’s top universities

Probably the most important outcome of the meeting in Doha that resulted in the Saudi failure to reach an agreement on freezing oil output, is that OPEC has accepted the loss of its regulatory role. Key decisions are discussed not just outside of OPEC but without it, soon to be taken outside it. Russia communicates with all parties (including the US and other principal consumers – oil-trade parties including both producers and consumers), and should start to think of a new format for its share of the world market.

It can include organizational, political and economic steps.

For instance, Russia can promote initiatives to counter the trade of oil and oil products of dubious origin, which plays an important role in dumping. Of course, ISIS oil can’t be completely ousted from the market, but it’s trade could be made politically and legally risky. Russia can and should take the same place in oil industry regulation that the USA has in regulating the global financial system.

If not, talk of displacing the dollar from the oil trade is merely an attempt at political propaganda. Even a 5-7% de-dollarization of the market – quite possible over the next 4-5 years – would considerably reduce its vulnerability. Because the potential for manipulation is related not only to the US and its clients’ ability to put large volumes of crude oil into the market, but also to the ability to drive-up prices and guarantee the repayment of “paper” oil.

Russia and some oil-producing countries are interested in reducing the market influence of its financial “build-up” that seems to be self-perpetuating. Why do they not use gold and the other investment tools that have limited speculative potential in addition to the ruble and yuan, given the high dollar volatility?

The evolution of the market context might change the big Russian-Iranian oil-refining project that could withdraw a sizable amount of “heavy” Iranian oil from the global market as a dumping tool.

Contrary to other countries where strategic mutual understanding on oil is unlikely, it would be quite possible to achieve this with Iran in the near future. And we would be remiss if we didn’t seize this opportunity. It would allow Russia to develop cooperation with Iran in the oil industry instead of competition. And Russia should improve its idea of relations with Iran, staking them on long-term cooperation rather than short term profit.

Moreover, it’s a good idea to make some anti-dumping agreement with the former Soviet countries, probably, initially, starting with a dialogue within the framework of the EEU. However, it’s a single and extremely complex question. But objectively now, with relatively low prices and reducing hydrocarbon charges, is the best time to start this dialogue.

And finally, we should think of the opportunity to extend our presence – let it be even a “minority interest” – in some large western oil company that found themselves in some difficult situation related to the new price range.

This might become the strongest step considering changing the context of Russia’s operation and investment activity in the global oil market.

That’s why it’s reasonable to think of the strategy that they call double-track in the West: while keeping the same logic and continuing talks with our traditional partners within traditional formats, at the same time making long-term planning, developing plans for changing the format and the context of global oil market which Russia can perfectly take the lead in, having an early edge.

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Russia Should Trade Her Oil for Gold Rather Than US Dollars