Notes From the WEF: Oil-Producing Nations Want Dollar Alternatives, Just Not Bitcoin

DAVOS, Switzerland – Most Middle Eastern elites at the World Economic Forum are highly skeptical of bitcoin, but there are whispers about its potential for cross-border settlements in the energy sector. 

According to Egyptian businessman M. Shafik Gabr, chairman of the ARTOC Group for Investment & Development, some Middle Eastern nations are already exploring the possibility of settling oil contracts in bitcoin. But he declined to specify which, and most of the leaders gathered in Davos for the annual conference that wrapped up Friday are adamant they see bitcoin’s post-sovereign nature as anathema. 

Fellow Egyptian investor Ahmed Heikal, CEO of Qalaa Holdings, said he’s not bullish on bitcoin because it “doesn’t have the legal framework” for such wholesale deals. If nations or energy enterprises are to use bitcoin, he argued, it won’t be for at least another decade. 

Delegates from Oman to the United Arab Emirates and Saudi Arabia all expressed similarly dismissive views about bitcoin as an asset, often referring to it as a gambling conduit. But when asked if it could still be used to settle oil contracts – especially considering the United States’ aggressive economic pressure on energy exporters Iran and Iraq – one Omani politician, who did not want to be identified, teased, “It depends on who’s asking.” 

U.S. sanctions are top-of-mind across the region, as when President Donald Trump urged Europe not to trade with “unfriendly” energy suppliers. Iraqi President Barham Salih pushed back with a speech on Wednesday that asserted it was Iraq’s sovereign right to have relations with neighbors on its own terms. 

Saudi Arabian businessman Hamza Alkholi, CEO of Al-Kholi Group, dismissed the idea that bitcoin-denominated oil contracts could ever be more than an outlier. 

“We’ve been trying for 30 years,” he said, referencing efforts to move beyond the U.S. dollar by settling oil contracts in euros. “Until bitcoin is regulated like the stock market, I don’t see that happening.” 

Crescent Enterprises CEO Badr Jafar, who is heavily invested in the oil and gas industry, agreed there’s no urgency among most players in his industry to move away from the dollar. Leaders and businessmen still don’t “trust” cryptocurrency, Jafar said, and he expects central banks would push back if bitcoin gained more significant usage.

However, if oil contracts were to be settled in currencies beyond the dollar, Jafar said that might be driven by political factors related to Russia and China.

And soon there will be a digital currency issuer eager to help dollar-weary energy suppliers find alternative settlement systems. Equally concerned about “trust,” China is hyper-focused on both compliance and global market opportunities. 

China's new Silk Road?

Chinese businesspeople see Eurasian crypto ventures as a stepping stone toward addressing more complex commodities markets.

China Blockchain Delegation Chairman Danny Deng said China’s blockchain-based currency, which he expects the People’s Bank of China (PBoC) to launch on a limited scale in 2020, could offer a backbone for energy markets. 

“Bitcoin has a larger and larger ecosystem, but it still can’t afford the trading volume of such a commodity,” Deng said. “The traders of oil and gas are using leverage. That leverage must be backed by financial systems. Regions, like Iran … may use bitcoin or other payment systems. But other countries that don’t have this problem may play an important role in national [cryptocurrency] settlements.”

From his perspective, fiat currency has become too political, rather than a strictly commercial tool. One of China’s most revered bitcoiners, Wang Wei, a leader of nearly a dozen associations from the Shanghai Stock Exchange Corporate Governance Advisory Committee to the China Mergers and Acquisitions Association, said bitcoin lost its chance to be the dominant currency for settlements and will instead primarily be a store of value.

Several Chinese businessmen who work with the government and PBoC agreed the bank could offer an alternative to dollar settlement systems by 2021. For example, Zhang Shousong, secretary general of the China Blockchain Application Center, said by the next Davos conference PBoC’s digital currency will be operational “not only in China, but all over the globe.” 

Given the tenor of public officials’ statements, Deng said cryptocurrency rails are “on a fast track.” Shousong added it’s “not like Libra, it’s certainly going to launch,” referring to the Facebook-initiated global currency project whose debut remains uncertain. 

In the meantime, Wei has taken Chinese-speaking Kazakhstani entrepreneur Tilektes Adambekov under his wing and helped the latter establish the licensed EBX crypto exchange in Kazakhstan, the world’s 10th-largest oil exporter. Adambekov joined the Chinese delegation for lunch in Davos to discuss the future of global markets over foie gras and fig chutney in a mountaintop restaurant with a panoramic view. Adambekov quoted Mao Zedong in a thank you speech to the delegation, which prompted resounding applause. 

From the delegation’s perspective, Adambekov is a perfect fit for China’s aspirations. He spent eight years working in China before returning home to focus on serving Russian-speaking crypto markets across borders. Plus, Kazakhstan has an open regulatory framework and is strategically situated along the path of China’s “Belt and Road” initiative. Adambekov said his exchange aims to support tokenized oil and gas options, settled in national cryptocurrencies yet offering bitcoin liquidity. 

From China to Oman, all businesspeople and diplomats agreed the dollar will remain king in commodities markets for the near future. But alternative options may already be on the horizon. 

When asked if such options could usurp the greenback by 2025, Matthew Blake, the World Economic Forum’s monetary systems lead, said the dollar’s role is so pronounced that “to displace it in a meaningful way would take longer than four years.”  

Bitcoin may, or may not, participate in that shift. 

“Bitcoin has demonstrated some of the qualities that a distributed currency can possess,” Blake said. “It’s also had challenges too. The role of a currency is to have a store-of-value with an inherent level of stability. There needs to be liquidity. In the case of bitcoin, it hasn’t had those qualities thus far.”