As the Trump administration tightens sanctions against Iran and Russia, and as the imposition of tariffs against China as a means of negotiating a more favorable trade arrangement continue, all three nations are moving away from the U.S. dollar primarily when it comes to oil sales, as a way of circumventing the punitive measures.
“There is a common understanding that we need to move towards the use of national currencies in our settlements. There is a need for this, as well as the wish of the parties,” Russian Energy Minister Aleksandr Novak said earlier this month when discussing the move. “This concerns both Turkey and Iran – we are considering an option of payment in national currencies with them. This requires certain adjustments in the financial, economic and banking sectors.”
Earlier this year, Iran banned the use of the U.S. dollar for all trade. And last year, Turkey and Iran signed an agreement to use local currencies for trading purposes, as relations between the U.S. and Turkey, both NATO members, soured. They both also agreed to stop using the euro.
The Iranians have signed several agreements with other countries to use other currencies and even cryptocurrencies in trade deals. Tehran is currently in negotiations with Russia to use national currencies in trade matters.
During a meeting with Russian President Vladimir Putin last fall, Iran’s Supreme Leader Ali Khamenei said that joint efforts to drop the U.S. dollar in bilateral trade was the best way to circumvent Trump administration sanctions.
He also told the Russian leader using other currencies besides the dollar more frequently would “isolate the Americans.”
More recently, Deputy Foreign Minister Sergei Ryabkov said in an interview with International Affairs magazine it was time Moscow moved on this concept more rapidly.
“The time has come when we need to go from words to actions, and get rid of the dollar as a means of mutual settlements, and look for other alternatives,” Ryabkov said. “Thank God, this is happening, and we will speed up this work,” he emphasized.
“Besides that, we must take retaliatory measures. Considering the logic and mentality that exist we should not leave their sanctions unanswered,” he continued, adding, “The lack of a direct answer to the challenge is only seen as a sign of weakness there and for the hotheads in Washington it is another reason to crank up pressure.”
Analysis: While part of these actions is based on ‘retaliation’ in some form, as Ryabkov asserted, it’s also a matter of economic necessity.
Iran’s economy has been stagnant for more than a year, as evidenced by recent (and ongoing) unrest there, where the complaints are primarily that the country is spending lavishly on military adventurism but too little on improving the Iranian people. For Russia, its economy doesn’t even rank in the world’s top 10 (edged out by Canada’s $1.16 trillion annual GDP), so Putin is looking for a way around U.S. -imposed sanctions that are biting as well. The consideration of cryptocurrencies is particularly interesting because they are based on even less than fiat currency, so that seems risky. In fact, some analysts have compared cryptocurrencies to Ponzi schemes.
But what these decisions show more than anything is that U.S. sanctions are effective enough that these countries feel it’s vital to find other means of earning revenue that bypass the U.S.-dominated global economy. Despite the rhetoric, these countries would continue to conduct trade via the U.S. dollar if it was in their best interests.
There is some movement toward using the Chinese yuan in “petro” trade instead of the dollar, and that might make sense given China’s economic might (some say annual Chinese GDP is already higher than that of the United States when using a certain metric. But the Chinese culture is one that is rife with corruption, and while President Xi Jinping has been clamping down on it, he has far to go.
Ultimately, it comes down to stability: Is China more stable — economically — than the United States? China’s corporate debt is massive, and while it’s declining, personal debt is rising, and fast, as banks loan more to consumers and local governments to fuel growth, all of which has been encouraged by the national government. That, say many economists and financial experts, is a recipe for fiscal disaster. If China’s economy were to take a massive hit, the yuan would take it as well, making it an unattractive trade vehicle.
Ultimately, these sanctions are putting the U.S. in a much stronger position economically, which translates into a strategic advantage.