Russian Foreign Minister has been in Baghdad speaking with his Iraqi counterpart Fuad Hussein, discussing new payment mechanisms to replace the US dollar. They have stated that Moscow and Baghdad plan to switch to paying for oil supplies in the currencies of “reliable countries” and move away from the dollar in bilateral economic relations.
At the end of 2022, the United States introduced numerous restrictions concerning cross-border payments in dollars from Iraq. According to local media, almost 80% of all transfers were blocked. The reason for this decision of the United States was “the need for Iraq to comply with sanctions against a number of countries.”
Much of this was to do with Iraq’s trade with Iran, as Tehran used various Iraqi commercial banks to circumvent US sanctions. However, the blocking of Iraqi transfers resulted in the Iraqi dinar collapsing in value by almost 10%, leading to protests and talk of a full-fledged economic crisis in the country. That has lead instead to discussions about the dominance of the US dollar in calculations and the prospects for finding alternatives in the form of currencies of other countries, such as the Chinese Yuan or the Emirati Dirham.
Russia, along with Iran, is now also under similar sanctions. Therefore, Moscow and Baghdad are also interested in developing trade relations regardless of the US dollar. As Sergei Lavrov said at a meeting on January 6, the two parties discussed the possibility of paying for oil in friendly currencies.
“In the current conditions of United States currency restrictions upon our two countries, it is important to protect legitimate economic relations from pressure from the West by switching to paying for oil supplies in the currencies of other reliable countries” Lavrov noted.
He added that a meeting of the intergovernmental commission on this issue will be held soon, and expressed the hope that the economic operators of both countries will be guided by national interests.
Four fuel and energy companies from Russia are operational in Iraq: Lukoil, Gazprom Neft, Bashneft and Rosneft. The first is working at the largest West Qurna-2 field together with the Iraqi state company North Oil Company. Gazprom is developing the Badra field in the Wasit province in the east of Iraq. Lavrov also met with the Iraqi President, Abdellatif Rashid, Prime Minister Mohammed Sudani and Chairman of the Parliament Mohammed Halbusi.
These most recent moves by Russia and Iraq are just the latest in a series of countries now wishing to trade in currencies other than the US dollar, a situation outlined by economist Nouriel Roubini, who stated on Sunday (January 5) that while no currency is yet capable of replacing the US dollar altogether, the currency is quickly losing its competitive advantage to the Chinese RMB Yuan.
Roubini stated in the Financial Times that “Given the increased weaponization of the dollar for national security purposes, and the growing geopolitical rivalry between the west and revisionist powers such as China, Russia, Iran and North Korea, some argue that de-dollarization will accelerate…In a world that will be increasingly divided into two geopolitical spheres of influence – namely those surrounding the US and China – it is likely that a bipolar currency regime will eventually replace the unipolar one.”