Russia’s Oil & Gas Backed Crypto?

Paul Goncharoff

Increasing use and growth of blockchain applications across all fields of endeavor has firmly taken root internationally and is spreading rapidly. Cryptocurrencies are only one aspect of these tidal changes but are highly visible due to their volatility, disputed nature and their perceived challenge to the traditional roles of money, control and power.

The changes occurring thanks to adaptation of blockchain technologies are indeed global, vast and deep. Russia also has its role to play in this brewing borscht of blockchain and crypto acceptance. This spring, perhaps as early as this March 2019 the Russian State Duma will consider voting final legislation that has been in active works for some time supporting and regulating accelerated blockchain development, the digital economy and some form(s) of cryptocurrency.

The work undertaken and prospects of a dedicated oil/gas cryptocurrency as a settlement system are well advanced and are expected to be a major part of legislative decisions to be taken this spring. This does not mean that overnight Russia will have an operating oil backed cryptocurrency, but it does mean the legislative road map to specify and schedule the introduction of an oil/gas cryptocurrency is in its final stage and will be enacted.

The role such a cryptocurrency will play applies not only to Russia, but also to the neighbouring and associated energy producers (Russia, Azerbaijan, Kazakhstan), and the consumers (Belarus, Ukraine). In time and after acceptance it may well expand further afield.

As of this writing, several countries would welcome the ability to trade internationally without having to rely upon the U.S. dollar as a reserve currency and the currency of international trade settlement. China and Russia are just two of many that fit the bill, and with more and more countries subjected to trade sanctions by the United States. Cryptocurrency is seen as a potential way out of this command and control cycle restricting free unfettered trade.

Having a settlement system in a specialised energy cryptocurrency would also enable getting away from costs associated with using non-commodity backed fiat currencies, unpredictable rate volatility, banking commissions, exchange commissions, currency channels and trade restrictions. Such a project can be a significant contribution to not only the development of a Russian, but an international digital ecosystem by setting a standard for commercial infrastructure, and the use of blockchain, smart contracts, and trade chain controls.

OPEC member countries control the vast majority of the world’s oil reserves. Russia is not an OPEC member, but is an oil producer of note. Such an oil-backed cryptocurrency would be of benefit to both Russia and OPEC countries in a very real and broad sense. For example Venezuela and Iran are OPEC members who today face difficulties in exporting their oil due to economic sanctions imposed by the U.S. They too are in the process of establishing their own state cryptocurrencies.

To eliminate the potential of U.S. interference in its cryptocurrency plans, Russia plans to first use its cryptocurrency for oil related trading within the Commonwealth of Independent States (CIS) countries. One case comes to mind is Turkmenistan and its gas contract with Gazprom, which runs through 2028. In time, and with a solid, secure success base the cryptocurrency can then expand internationally as needed.

Spring has always symbolized rebirth after a long winter, maybe this movement towards free trade via crypto is just what world trade needs after this very long tariff and sanctions deep freeze.