Russia Turns to Bitcoin BTC/USD and Ethereum ETH/USD to Evade Western Sanctions

Russia has started employing cryptocurrencies such as Bitcoin BTC/USD and Ethereum ETH/USD to manage a growing segment of its oil transactions with China and India

Russia has begun using cryptocurrencies like Bitcoin (BTC/USD) and Ethereum (ETH/USD) to manage a portion of its oil transactions with China and India, circumventing Western sanctions, according to a report by Reuters.

These deals, facilitated by middlemen, involve converting local currencies, such as yuan and rupees, into rubles, with stablecoins like USDT also being employed. However, Tether (USDT/USD), the centralized issuer of USDT, can halt the flow of funds if it comes under regulatory pressure.

One insider, linked to a Russian oil firm, revealed that the crypto-based sales to China amount to several tens of millions of dollars per month.

The shift in strategy began in December after Russia adjusted its legal framework to allow cryptocurrency use in cross-border payments. This move was described by Finance Minister Anton Siluanov as a response to trade disruptions from sanctions imposed after the Ukraine conflict, which led to banks avoiding Russia-related dealings.

In September, Chainalysis highlighted the central bank's efforts to develop crypto systems to evade these sanctions. This report marks the first documented instance of digital currencies being used in Russia's $192 billion annual oil sector.

Recently, Anton Gorelkin, an official, remarked that sanctions cannot fully block crypto access, highlighting its effectiveness as a workaround. Especially after the EU added sanctions to the Russian exchange Garantex, which was already targeted by the U.S. since 2022.

This week, the central bank announced a three-year trial permitting accredited investors—those with investments exceeding 100 million rubles ($11.5 million) or income over 50 million rubles annually—to engage in crypto trading. However, domestic payments in crypto are still off-limits, with penalties set for non-compliance.

Last November, the Federation Council, with the approval of President Vladmir Putin, enacted a tax measure on crypto trades and mining. The approved rates are 13% for earnings up to 2.4 million rubles and 15% above that, while excluding crypto from value-added tax.

Putin also legalized mining last year, requiring registration, although some regions, like Krasnoyarsk, are limiting it due to excessive energy consumption.

The central bank is also preparing to introduce the digital ruble in stages this year.

It's worth noting that Iran and Venezuela have also been turning to crypto for trade, with Venezuela particularly stepping up its oil exports via digital means following recent U.S. sanctions.