Wheat for cars, seeds for construction goods: Russia resorts to barter trade with China amid sanctions

Old-fashioned barter is on the rise in Russia’s foreign trade for the first time since the 1990s, as companies seeking to outfox Western sanctions swap wheat for Chinese cars and flax seeds for building materials.

Even as Russia builds warm ties with China and India, the return of barter shows just how far the war in Ukraine has distorted trading relationships for the world’s biggest producer of natural resources, three decades after the 1991 collapse of the Soviet Union ushered in Russian economic integration with the West.

The United States, Europe and allies have imposed more than 25,000 different sanctions on Russia over the 2022 war in Ukraine and the 2014 annexation of Crimea in a bid to sink Russia’s $2.2 trillion economy and undermine support for President Vladimir Putin.

Washington has also hit India with tariffs in response to New Delhi’s oil trade with Russia.

Putin says Russia’s economy has outperformed expectations. It grew faster over the past two years than G7 countries, despite Western predictions of a crash. He has ordered businesses and officials to defy sanctions in every way they can.

However, there are growing signs of strain on the economy, which the central bank now shows to be technically in recession and which suffers high inflation.

Some punitive measures —particularly the disconnection of Russian banks from the SWIFT payments system in 2022 and Washington’s warnings to Chinese banks last year against supporting Russia’s war effort— have stoked fears of secondary sanctions.

“Chinese banks are afraid of being placed on sanctions lists, under secondary sanctions, so they do not accept money from Russia,” a source in the payment market told Reuters.

Those concerns appear to be behind the emergence of barter transactions, which are much harder to trace. In 2024, Russia’s economy ministry issued a 14-page ‘Guide to Foreign Barter Transactions’, advising businesses on how to use the method to skirt sanctions. It even proposed the creation of a trading platform that would work as a barter exchange.

“Foreign trade barter transactions allow the exchange of goods and services with foreign companies without the need for international transactions,” the ministry document said, citing “conditions of sanctions restrictions”.

Until recently, there was little evidence of commercial interest in such transactions. However, last month, Reuters reported that China’s Hainan Longpan Oilfield Technology Co. was seeking to trade steel and aluminium alloys in exchange for marine engines.

The company did not respond to a request for comment.

For this story, Reuters was able to identify eight such transactions of goods-in-kind based on trade sources, public statements from customs services and company statements. The transactions have not been previously reported.

While the news agency could not establish the overall value or volume of barter in the Russian economy due to the opacity of the transactions, three trade sources said the practice was becoming more frequent.

“The growth of barter is a symptom of de-dollarisation, sanctions pressure and liquidity problems among partners,” Maxim Spassky, Secretary of the General Council of the Russian-Asian Union of Industrialists and Entrepreneurs, an industry body, told Reuters. Spassky said barter volumes were likely to grow further.

One of the trade sources —who spoke on condition of anonymity due to the sensitivity of the information— said the system helped circumvent sanctions that disconnect Russian banks from dollar and euro transactions.

Three analysts said a possible indication of the scale of barter was a widening divergence between the foreign trade statistics of the central bank and the customs service’s own data, which reached $7 billion in the first half of this year.

In response to a request for comment, Russia’s customs service confirmed barter was carried out with different countries “for a wide range of goods”. It said, however, the number of barter transactions was insignificant compared to overall foreign trade contract volumes.

Russia’s foreign trade surplus in January — July decreased by 14 per cent compared to a year earlier, to $77.2 billion, according to published data from the Federal Customs Service. Exports during this period decreased by $11.5 billion to $232.6 billion, while imports increased by $1.2 billion to $155.4 billion.

The government and central bank declined to discuss barter with Reuters beyond saying that there was no data available on such transactions as they would be included in the overall figures if reported lawfully. One source close to the government said that the data divergence could be due to differences in methodology.

Cars for grain

In one transaction identified by Reuters from two trade sources, Chinese cars were traded for Russian wheat. According to one of the sources, the Chinese partners in the deal asked their Russian counterparts to pay in grain.

The Chinese partners bought the cars in China for yuan. The Russian partner bought grain with roubles. Then the wheat was exchanged for cars.

Reuters could not establish the volumes traded, nor the mechanism by which the traders decided the value of the grain or the cars.

In two other transactions, flax seeds were exchanged for goods including household appliances and building materials from China, customs statements show. Experts with knowledge of Russia’s external trading said one of the flax deals, registered in a 2024 statement by Russia’s customs service of the Urals region, was estimated to be worth in the region of $100,000.

China is a major importer of Russian flax seed, used in industrial processes and as a nutritional product.

In other transactions, metals were delivered to China in exchange for machines, Chinese services were swapped for raw materials, and a Russian importer bought aluminium to pay a Chinese company. One deal was with Pakistan.

Some barter transactions have allowed the import of Western goods to Russia despite sanctions, two sources with knowledge of the transactions said, without providing details of which goods.

At the Kazan Expo business forum in August, Chinese companies cited settlement issues among problems hindering the development of bilateral trade. Xu Xinjing, chairman of Hainan Longpan Oilfield Technology Co., Ltd, said barter trade could be a solution.

Speaking at the conference, Xu said that “in the current conditions of limited payments,” barter provided new opportunities for enterprises in Russia and Asian countries.

Barter sowed chaos in the 1990s

In the wake of the Soviet collapse in the 1990s, barter sowed chaos through the economy as vast chains of contingent deals were set up for everything from electricity and oil to flour, sugar and boots, allowing for pricing scams that made value hard to determine and earned fortunes for some.

At the time, the lack of ready money, vast inflation and repeated devaluations made barter attractive. Now, there is plenty of money but barter is being driven by the constantly changing pressure of the threat of Western sanctions on Russia and China.

Russia says the Western sanctions are illegal and China has criticised them as discriminatory.

Barter is not the only workaround. Some traders have used so-called “payment agents”, who for a fee facilitate payments through various schemes, but such transactions can be risky.

Another way to execute payment is via Russia’s state-owned VTB bank which has a branch in Shanghai. Others use cryptocurrencies pegged to the U.S. dollar.

“Small businesses are actively using crypto. Some transport cash, some work through offsets, some diversify accounts with different banks,” said Sergey Putyatinsky, vice president for operations and IT at BCS, a leading Russian financial company.

“There is no ready-made technological answer yet. The economy is surviving, and business is simultaneously applying 10-15 different payment methods,” he said.

(This is an agency copy. Except for the headline, the copy has not been edited by Firstpost staff.)

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