More traders replace USD with other currencies for oil transactions

Amidst the ongoing Russia-Ukraine war, more countries have shifted from decades-long petrodollar, as over a fifth of global oil trade in 2023 were completed in currencies different from the U.S. dollar.

Coming at a time when operators in Nigeria are seeking ways to settle domestic oil and gas trade in naira, JP Morgan told the Wall Street Journal that sanctions are motivating countries to settle oil deals in other currencies.

Countries such as Russia, China and Iran were spotlighted in breaking the petrodollar rank as JP Morgan’s head of global commodities strategy, Natasha Kaneva, admitted that “the U.S. dollar is getting some competition in commodities markets,”

Coming amidst geopolitical moves with China projecting its currency as an alternative in global deals, on Wednesday this week, Russian and Iran finalised an agreement to trade in their local currencies instead of the U.S. dollar.

“Banks and economic actors can now use infrastructures including non-SWIFT interbank systems to deal in local currencies,” Iran had said.

Apart from the concern over growing dependence on the dollar, countries fear possible sanctions that could create economic tension during a major geopolitical crisis.

Between 2015 to 2021, only about two major oil transactions were completed in US dollars, this year alone, the number rose to 12 even as the China yuan is said to have become the fourth most popular international settlement currency. The country had in October completed a major international oil deal in digital yuan.

In Nigeria, despite the shortage of the dollar and its inflationary measures, crude oil buyers for modular refineries have expressed worry over sourcing millions of dollars to purchase crude locally.

Managing Director, Niger Delta Power Holding Company (NDPHC) Limited, Chiedu Ugbo, had called for a halt in the sale of gas in dollars.

“Gas should not be denominated in US dollars and then exposed to vagaries in the forex market,” he said.

The Chairman of the Crude Oil Refineries Owners Association of Nigeria (CORAN), Momoh Oyarekhua, had also called on the federal government to urgently intervene to assist modular refineries in buying crude oil in naira.

The Association for Public Policy Analysis (APPA), last week, in Abuja said completed oil and gas transactions in Nigeria within the country would improve the economy and reduce the pressure on the naira from other currencies.