Russia quietly prepares to switch some oil trading from dollars to rubles

Russia, the world's second-largest oil-exporting nation after Saudi Arabia, has been quietly preparing to switch trading in Russian Ural Blend oil, the country's primary export, from the dollar to the ruble. The Russian effort began modestly this month [Feb 2008], with trading in refined products for the domestic market. Private brokers will be allowed to trade in March; futures contracts will be introduced in April. The effort to squeeze the dollar out of Russian oil sales marks another project with swagger and ambition by the Kremlin, which has already wielded its energy wealth to assert influence in Eastern Europe and in former Soviet states.

Oil trading is now nearly always denominated in dollars, the de facto common currency of the petroleum business. As a result, companies and countries that buy petroleum products are encouraged to hold dollar reserves to pay for their supplies, helping the American economy support its trade deficit. Russia would like to change this practice, at least among its customers, as a means to elevate the importance of the ruble, a new source of national pride after gaining 30% against the dollar during the current oil boom. A move away from the dollar, meanwhile, is more glum news for the United States.

A new glass-and-marble home for a ruble-denominated commodity exchange is rising this spring in a prestigious district in St. Petersburg. Viktor Nikolayev, the director of the St. Petersburg exchange, said no timeline had been established for trading for export on the exchange, which also handles grain, sugar, mineral fertilizer, cement and esoteric financial products like Russian government quotas for beef and pork imports - all in rubles. "We are in Russia, and the currency is rubles, not euros, not dollars," he said. "We don't want to depend on the rise or fall of the dollar."

Other oil-exporting countries, too, are chafing at dealing in the weakening dollar. Iran, one of the largest oil-exporting nations, and no friend of the United States, has since 2005 striven to open a commodity exchange to trade oil in currencies other than the dollar. Iran's ambassador to Russia, discussing the two countries' interest in the idea, said Iran might choose rubles to free his country from "dollar slavery."

- The US dollar is going to weaken further as the world is running instead of walking away from it. The euro is now at 1.518 (EUR/USD), and gold is continuing to smash through all records and is currently at $972.40 per ounce at the time of writing. The US Dollar Index, USDX, a weighted average of the USD versus a basket of other major currencies, has broken through all support levels including 76, 75 and 74 and is now at 73.796.

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