More traders replace USD with other currencies for oil transactions
In the midst of the Russia-Ukraine conflict, a significant shift away from the long-standing reliance on the petrodollar has been observed, with more than a fifth of global oil transactions in 2023 being conducted in currencies other than the U.S. dollar.
As Nigeria explores avenues to settle domestic oil and gas trade in the naira, JP Morgan, in a statement to the Wall Street Journal, highlighted that sanctions are serving as a catalyst for countries to opt for alternative currencies in settling oil deals.Prominent nations like Russia, China, and Iran have emerged as key players in breaking the petrodollar dominance.
Natasha Kaneva, JP Morgan’s head of global commodities strategy, acknowledged that “the U.S. dollar is getting some competition in commodities markets.”The geopolitical landscape sees China positioning its currency as a global alternative, with Russia and Iran recently finalizing an agreement to conduct trade in their respective local currencies rather than the U.S. dollar.
Iran announced that financial institutions can now use non-SWIFT interbank systems for transactions in local currencies.Concerns about overreliance on the dollar and the potential impact of sanctions during geopolitical crises are driving this shift. Between 2015 and 2021, only two major oil transactions were completed in U.S. dollars, whereas this year alone, the number has risen to 12.
The Chinese yuan has also gained prominence as the fourth most popular international settlement currency, with a major international oil deal completed in digital yuan in October.In Nigeria, where the shortage of dollars and inflationary measures prevail, buyers for modular refineries express apprehension about sourcing millions of dollars to purchase crude locally.
Chiedu Ugbo, Managing Director of Niger Delta Power Holding Company, advocates for a shift away from selling gas in dollars, citing exposure to forex market uncertainties. Momoh Oyarekhua, Chairman of the Crude Oil Refineries Owners Association of Nigeria, urges urgent government intervention to enable modular refineries to buy crude oil in naira.
Last week, the Association for Public Policy Analysis (APPA) emphasized that completed oil and gas transactions within Nigeria would boost the economy and alleviate pressure on the naira from other currencies.Credit The Guardian