China may use renminbi (RMB) or ruble denominated letters of credit (L/Cs) to pay for Russian gas.

Earlier this year, the countries signed a landmark deal with China agreeing to buy Russian gas worth a total of US$400 billion.

Supply agreement

The gas will be supplied to China National Petroleum Corporation by Gazprom under a 30-year contract which has been seen in some quarters as yet more evidence of a shift in world trade from west to east.

The deal with Asia's largest economy also marks a significant change of focus for Russia, which has tended to look to Europe to sell gas.

Currency switch

Soon after the deal was announced, Russian energy minister, Alexander Novak, said China would pay in US dollars.

Now, the head of Gazprom, Andrei Kruglov, has reportedly said that since the RMB will soon be fully convertible, the gas could be paid for in RMB or rubles.

Reduced dependence

Sanctions imposed on Russia over its alleged activities in the Ukraine may have prompted the apparent currency switch.

The Financial Times recently reported that Russian companies are forsaking US dollar denominated trade in favour of doing business in RMB or other Asian currencies to reduce their exposure to western financial institutions.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.