China and Russia Settle Natural Gas Payments in Yuan and Ruble

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[Asia Economy Senior Reporter Cho Young-shin] As Western economic sanctions against Russia, including the introduction of a price cap on Russian crude oil, enter the final countdown, China and Russia have agreed to use the yuan and ruble for liquefied natural gas (LNG) transactions. This effectively opens an energy export route for Russia, which is blocked from dollar payments by China.

Photo by Huanguo Shibao Capture

According to Chinese state media such as Xinhua News Agency and Xin Jing Bao on the 8th, China National Petroleum Corporation (CNPC), a Chinese state-owned company, and Gazprom, a Russian state-owned gas company, agreed the day before to conduct natural gas transactions with 50% in yuan and 50% in rubles. Accordingly, the two companies will henceforth settle payments only in rubles and yuan, not in the key currency, the dollar.

Alexey Miller, CEO of Gazprom, said, "According to the new agreement, payments for natural gas transactions will be made in the two countries' currencies, rubles and yuan," adding, "Simultaneous payment in rubles and yuan is mutually beneficial and will serve as a good example for other companies."

China also appears to place significance on this agreement, as it not only helps the internationalization of the yuan but also ensures a stable supply of Russian natural gas.

Hong Tao, a professor at Beijing Technology and Business University, explained, "China will be able to import a huge amount of natural gas stably in the future, and Russia will secure the huge market of China," describing it as an agreement of great significance from a global strategic perspective.

Zhou Maohua, chief researcher at Guangda Bank, said, "Using the currencies of the trading parties can reduce exchange rate fluctuation risks and improve trade settlement efficiency."

Within China, there is also an expectation that this agreement will accelerate the internationalization of the yuan.

Analyst Liu Dan from Yinhe Securities forecasted, "Since the COVID-19 pandemic, the proportion of dollar settlements has decreased, highlighting a trend toward de-dollarization," and added, "This agreement will further increase the share of yuan in international settlements."

As dollar expenditures decrease, it also helps strengthen foreign exchange defenses. In the first half of this year, China's imports of natural gas from Russia amounted to $2.16 billion (about 3 trillion won). By settling payments in yuan and rubles instead of dollars, China can hold that much more dollar reserves.

It is even reported that in the first half of this year, China's natural gas exports to Europe accounted for about 7% of Europe's total imports, leading to internal analyses that Western economic sanctions on Russia are benefiting China.

[Image source=Yonhap News]

Lin Bochang, a professor at Xiamen University, predicted, "Currency transactions between the two countries can reduce dependence on the dollar and cut unnecessary trade transaction costs," adding, "The two countries will discuss the import prices of Russian natural gas and other matters later."

Meanwhile, Russian President Vladimir Putin stated at the 7th Eastern Economic Forum (EEF) held in Vladivostok the day before that Russia will not export energy such as oil and natural gas to countries that join the U.S.-led price cap on Russian crude oil.

President Putin raised his voice, saying, "The West's attempt to isolate Russia will fail," and emphasized that Russia will pursue diversification of energy supply sources. He reaffirmed that he has no intention of yielding to sanctions from the U.S. and other Western countries and intends to weaponize energy such as crude oil and natural gas.

This content was produced with the assistance of AI translation services.