Russia to price oil in euros in snub to US
By Ambrose Evans-Pritchard in Brussels (Filed: 10/10/2003)
Russia is to start pricing its huge oil and gas exports in euros instead of dollars as part of a strategic shift to forge closer ties with the European Union.
The Russian central bank has been amassing euros since early 2002, increasing the euro share of its $65 billion (£40 billion) foreign reserves from 10pc to more than 25pc, according to the finance ministry.
The move has set off a chain reaction in the private sector, leading to a fourfold increase in euro deposits in Russian banks this year and sending Russian citizens scrambling to change their stashes of greenbacks into euro notes.
German officials said Chancellor Gerhard Schroder secured agreement for the change-over on oil pricing from Vladimir Putin, the prime minister, while on a trip to Russia this week.
Moscow: Middle East may follow lead of Russia's changeover to oil pricing in Euro
The two leaders have forged a close personal bond and are both keen to check American economic and diplomatic power.
Mr Putin was coy about German media reports on the deal yesterday but acknowledged that Russia was exploring the idea. "We do not rule out that it is possible. That would be interesting for our European partners," he said.
A switch to euro invoicing would not affect the long-term price of oil but it could encourage Middle Eastern exporters to follow suit and have a powerful effect on market psychology at a time when the dollar is already under intense pressure. Russia boasts the world's biggest natural gas reserves and is the number two oil exporter after Saudi Arabia.
Yesterday the dollar recovered slightly against the yen and euro, but the IMF and the European Central Bank both warn that America's ballooning current account deficit, now over 5pc of GDP, will lead to further declines.
Oil is seen as so central to the global power structure that the choice of currency used for pricing has acquired almost totemic significance. The switch from pounds to dollars after the Second World War has come to symbolise sterling's demise as a world reserve currency.
If the dollar were ever displaced by the euro, it would lose the enormous freedom it now enjoys in running macro-economic policy. Washington would also forfeit the privilege of exchanging dollar notes for imports, worth an estimated 0.5pc of GDP.
Maxim Shein, from BrokerKreditService in Moscow, said the switch to euros makes sense for Russia since it supplies half of Europe's energy needs. But the move is also part of a global realignment stemming from the Iraq war, which threw Russia, Germany and France together into a new Triple Entente.
"Abandoning the dollar is tantamount to a curtsey to the EU," he said. For now, IMF figures show the dollar remains king, accounting for 68pc of foreign reserves worldwide compared with 13pc for the euro.