The Kremlin has nearly approached a decade-old cherished dream: Russian oil could be priced in Russia soon. Russia invites international oil traders to join its futures exchange. In an effort to loosen the correlation between oil and the economy, the Kremlin wants to move away from quoting petroleum in US dollars. Another aim is to increase revenue from Urals crude. “The goal is to create a system where Russian oil is priced and traded in a fair and straightforward way,” said Alexei Rybnikov, president of the St. Petersburg International Mercantile Exchange, or Spimex.
However, energy analysts note Russia has to overcome a big obstacle, in particular to persuade traders the move is not just an attempt to push prices up. Russia has been discontented with the size of the discounts for lower quality Urals oil compared to benchmark North Sea Brent. Russia is now running the widest budget deficit since 2010 as the economy is going through the second year of recession. Importantly, foreign traders are concerned about sharp swings in the ruble because the ruble exchange rate cannot be influenced through interest rates in Russia. Profit margin on oil futures is to be calculated in rubles. Meanwhile, the Kremlin is introducing foreign oil traders to benefits of Russia’s futures market. Wooing customers, the Bank of Russia is preparing legislative amendments to grant non-Russian firms access to exchange-traded commodities and their derivatives.
Interestingly, Russia is not the only one to launch its own price-setting mechanism for oil. China has made attempts to introduce its own oil futures for two decades. Iran and Venezuela call on oil exporters to unpeg oil from the US dollar and trade oil in other currencies.
