Lukoil asking for rubles

Lukoil, Russia’s largest independent oil producer, comments that the company would like to be paid in rubles by 2009. Gasprom, the natural gas producer, has also suggested a similar view. Russia may be one more country trying to take their commodities off the dollar payment system. Russia has not been able to exploit all of their gains from their exploding oil revenues when they are paid in dollars. Most of their trade is with Europe so the goods they purchase are more expensive because of the dollar decline. The ruble actually trades as a managed float between the dollar and euro, so while it has appreciated against the dollar it has actually fallen versus the euro. Of course, the US-Russia relationship is shakier now than in the past which adds to the rumblings about switching payment schemes.

The benefit to Russia and their oil companies would be significant. First, most of the oil company costs are in the local currency so getting paid in rubles would help the profitability for these oil companies. Second, it would increase trading in the ruble which would further integrate Russia in the global markets. The cost would not be great for the US in the short-run since the US is not a large buyer of Russian oil, but the ramifications of the second largest oil producer switching out of the dollar would not be positive for the US.