Russian President Vladimir Putin declared Wednesday that Russia will require that non-friendly countries pay for Russian natural gaz exports in rubles only from now on.
Putin stated to government officials during a meeting that “a number” of Western countries had made illegal decisions regarding the so-called freezing Russian assets. This effectively drew a line over the reliability of their currencies and undermined the trust in those currencies.
Putin stated, “It doesn’t make sense whatsoever to supply our goods in the European Union and the United States and then receive payment in dollars, euros, and a variety of other currencies.” He announced that he was going to change to Russian rubles for payments for natural gas supplied to “unfriendly countries”.
The Russian president did not specify when the new policy would take effect. The Russian president instructed the central bank to create a process for natural gas buyers to purchase rubles in Russia.
Economists claimed that the move was intended to support the ruble. The ruble has been falling against all other currencies since Putin invaded Ukraine in February 24. Western countries have responded by imposing severe sanctions against Moscow. However, some analysts doubted that it would succeed.
Eswar Prasad is Cornell University’s professor of trade policy. “Demanding payment for rubles is a curious, probably ultimately ineffective way to try an end run around Western financial sanction,” he said. Rubles are definitely easier to find now that the currency has collapsed. It will be difficult to exchange other currencies for rubles due to the financial sanctions that have been imposed on Russia.
Prasad said that the hope of a demand increase in currency prices by demanding payment in rubles is a false hope, given the currency’s downward pressures.
Capital Economics’ group chief economist Neil Shearing said that it was not obvious because the Russian economy requires foreign currency to pay imports. Energy is one of the few remaining sources.
Despite Western sanctions, natural gas flows continue to flow from Russia to Europe, despite severe Western sanctions. The EU is dependent on Russia for 40% its natural gas needs. This is why it has not imposed sanctions against Russia’s energy sector.
In Europe, governments are also reducing fuel taxes and distributing tens to billions to consumers, truckers, and farmers in order help them deal with the spiking energy costs caused by Russia’s war against Ukraine.
Vinicius Romano is a Rystad Energy senior analyst who suggested that Moscow’s insistence on paying in rubles may give buyers cause for them to reopen some aspects of their contracts, such as the duration, and speed up their exit form Russian gas.
