Every government policy has consequences – some intended and some unintended.
There is at least one serious unintended consequence of the economic sanctions levied against Russia after its invasion of Ukraine – an erosion of the US dollar dominance.
Reuters reports that recent oil deals between India and Russia have been settled in currencies other than dollars.
The majority of global oil sales are priced in dollars. This ensures a constant demand for the greenback since every country needs dollars to buy oil. This helps support the US government’s “borrow and spend” policies, along with its massive deficits. As long as the world needs dollars for oil, it guarantees demand for greenbacks. That means the Federal Reserve can keep printing dollars to monetize the debt.
But if that demand were to suddenly disappear or even shrink significantly, it would create a big problem for the US economy.
India ranks as the number three oil importer in the world. Russia became the country’s leading provider of crude after Europe dramatically cut Russian oil imports in the wake of the Ukraine invasion. India is also now Russia’s top oil customer.
While India doesn’t recognize the sanctions on Russia, most of its oil purchases have reportedly complied.
Nevertheless, according to the Reuters report, Indian importers have paid for most Russian oil in non-dollar currencies since the Group of Seven economies, the European Union and Australia, imposed an oil price cap on Russia on Dec. 5. Instead of settling oil trades in dollars, Russia and India have used UAE dirham and Russian rubles. These transactions total “several hundred million dollars” according to sources quoted by Reuters….