Russia has proposed settling bilateral trade with Bangladesh in Indian rupees to overcome payment difficulties caused by Western sanctions, while also reviving plans to establish a direct banking link between the two countries.
The proposal includes conducting trade in rupees, creating a dedicated payment infrastructure and allowing a Russian bank to open a branch in Bangladesh.
Analysts say the move could reduce dependence on the US dollar in Bangladesh-Russia trade and provide an alternative mechanism for transactions affected by sanctions. However, they caution that Bangladesh will need to carefully consider the diplomatic, financial and regulatory implications before making a decision.
According to the Economic Relations Division (ERD), the proposals will be discussed at the Bangladesh-Russia Intergovernmental Commission on Trade, Economic, Scientific and Technical Cooperation, scheduled for September or October. A preparatory meeting will be held beforehand to determine Bangladesh’s negotiating position.
Why Russia wants rupee trade
Following the outbreak of the Russia-Ukraine war in 2022, Russian banks were hit by extensive US and Western sanctions, disrupting access to conventional international payment systems.
In response, Moscow has expanded the use of local currencies in trade with several countries, including India, China and Turkey.
Russia now wants Bangladesh to adopt a similar arrangement, under which bilateral trade would be settled in Indian rupees through an alternative payment mechanism designed to reduce the impact of sanctions.
Rooppur payments remain unresolved
One of the key drivers behind Russia’s proposal is the ongoing difficulty in repaying loans for the Rooppur Nuclear Power Plant.
Bangladesh has struggled to transfer loan repayments because sanctions have restricted transactions with Russian banks.
An earlier proposal to settle payments in Chinese yuan did not progress after banks reportedly expressed concerns over potential sanctions exposure.
For now, Bangladesh is depositing loan instalments into a Sonali Bank account opened in Russia’s name as an interim arrangement. The funds, however, have yet to be transferred to Russia, leaving several billion dollars in repayments unresolved.
Bangladesh had previously proposed using the funds for investment projects within the country, but Russia did not agree.
Russian bank branch back on the table
Moscow has also renewed its proposal to open a branch of a Russian bank in Bangladesh.
The proposal was first raised during the Awami League government’s tenure. Bangladesh Bank sought the foreign ministry’s opinion at the time, but no decision was reached.
Officials say a Russian bank branch could facilitate bilateral financial transactions, although any decision would have to take into account international sanctions, banking regulations and Bangladesh’s broader foreign policy considerations.
Trade expansion plans
Russia has also proposed several measures to strengthen bilateral trade, including:
- Establishing a Bangladesh-Russia Business Council
- Preparing a list of Bangladeshi garment exporters for the Russian market
- Expanding cooperation in small and medium-sized enterprises
- Supporting the development of special economic zones in Bangladesh
- Increasing industrial investment and cooperation
Russian officials believe economic ties have yet to match the strength of the two countries’ political relationship.
Exports have declined since the war
Bangladesh’s exports to Russia have fallen sharply since the war began.
Before the conflict, Bangladesh exported goods worth more than $500 million annually to Russia. According to recent data, exports totalled around $245 million during the July-May period of the current fiscal year.
Bangladesh, meanwhile, continues to import key commodities from Russia, including wheat and fertilizer.
Bangladesh’s priorities
At the upcoming commission meeting, Bangladesh plans to focus on:
- Technology transfer
- Renewable energy cooperation
- Power and energy development
- Digital economy and e-commerce
- Agriculture and food security
- Agro-processing
- Technical and vocational education
- Skills development
- Connectivity and logistics
ERD officials believe the meeting could shape not only future trade but also long-term industrial and technological cooperation between the two countries.
Fertilizer supply proposal
Russia has also expressed interest in supplying around 280,000 tons of urea fertilizer to Bangladesh under a government-to-government arrangement.
According to the proposal, the fertilizer would be sold at $10 per tonne below prevailing international market prices.
Moscow has also offered to expand supplies of sunflower oil, wheat, muriate of potash (MOP), yellow peas, chickpeas, red lentils and green lentils.
Commerce Minister Khandaker Abdul Muktadir welcomed Russia’s interest, saying Bangladesh remains committed to expanding bilateral trade, investment and economic cooperation based on mutual benefit.
Opportunities and challenges
Analysts say settling trade in rupees could help resolve long-standing payment bottlenecks, particularly those related to the Rooppur project.
At the same time, they note that any such arrangement would have implications beyond trade, including international sanctions compliance, foreign exchange management, banking risks and diplomatic relations.
As a result, Bangladesh will need to adopt a framework that supports bilateral trade and investment while safeguarding its financial stability and relationships with the global financial system.
The upcoming Bangladesh-Russia Intergovernmental Commission meeting is therefore expected to play a key role in shaping the future direction of economic cooperation between the two countries.