Vladimir Putin’s insistence that “unfriendly” nations pay in rubles for natural gas is just the beginning of a Russian export policy that will see fewer U.S. dollars being used in transactions for goods, especially for energy, according to the Kremlin.
Russia has set a March 31 deadline for the countries it considers “hostile” - including the United States, all EU member states, Switzerland, Canada, Norway, South Korea, Japan, and many others - to start paying in rubles for natural gas.
Still, Europe continued to receive Russian natural gas via pipelines on Friday, even after Putin threatened European countries that Moscow would cut off gas flows unless buyers complied with Russia’s gas-for-rubles-only demand.
Throughout last week, the Kremlin issued unclear - and at times, contradictory - messages, while European economies started to activate emergency plans in anticipation of a potential disruption to gas supply from Russia. Germany and Italy - major European economies and major importers of Russian gas - said last week that they had received assurances from Russia that they could continue paying in euros for the gas coming from Russia.
Russia did not immediately cut off the gas supply to Europe partly because it is dependent on revenues from gas and partly because payments for gas delivered after April 1 are not due until later this month or early May.
The continued gas supply to Europe eased concerns that Europe would find itself cut off from Russian gas, but those concerns could intensify again later this month and in May when payments to Moscow are due.
The Kremlin, for its part, signals the gas-for-rubles demand is just the beginning of a switch to the Russian currency for Russian exports.
“It is the prototype of the system,” Kremlin spokesman Dmitry Peskov said over the weekend on Russian state television, referring to the gas-for-rubles scheme.
“I have no doubt that it will be extended to new groups of goods,” Reuters quoted Peskov as saying. The Kremlin spokesman did not provide any timeline for extending the rubles payments to exports of other goods.
Last week, the Kremlin signaled that it could work on an idea to price all energy and commodity exports of Russia in rubles.
This weekend, Peskov said Moscow was seeking a new global system that would not have the U.S. dollar as the dominant currency.
“It is obvious that - even if this is currently a distant prospect - that we will come to some new system - different from the Bretton Woods system,” Peskov said.
Russia’s demand for rubles for gas goes beyond economics, analysts told CBC News and The Associated Press.
By demanding rubles for natural gas, Russia wants to score “a kind of political victory,” Stefan Meister, head of the program on international order and democracy at the German Council on Foreign Relations, told The Associated Press.
“It wants to show that Putin dictates the conditions under which it exports gas,” Meister told AP.
Payments in rubles could also send a message in Russia that the ruble is strong and Putin’s war in Ukraine is going according to plan, analysts also said.
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However, from an economic standpoint, the ruble payment is strange, other analysts note.
“Under normal circumstances, a country that is trying to prop up its currency and maintain imports from abroad would seek payments in hard currencies such as dollars and euros rather than its own currency,” Eswar Prasad, the Tolani Senior Professor of Trade Policy and professor of economics at Cornell University, told CBC News.
It is possible that Russia could be using the demand for payments in ruble as a way to skirt Western sanctions, Prasad and other experts say.
By Tsvetana Paraskova for Oilprice.com
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From Pepe Escobar:
"What Moscow wants is to be paid at Gazprombank in Russia, in its currency of choice, and not at a Gazprom account in any banking institution in western capitals.
That’s the essence of less-is-more sophistication. Gazprombank will sell the foreign currency – dollars or euros – deposited by their customers on the Moscow Stock Exchange and credit it to different accounts in rubles within Gazprombank.
What this means in practice is that foreign currency should be sent directly to Russia, and not accumulated in a foreign bank – where it can easily be held hostage, or frozen, for that matter.
All these transactions from now on should be transferred to a Russian jurisdiction – thus eliminating the risk of payments being interrupted or outright blocked."
1- It will be a retaliation against Western sanctions with the aim of undermining them.
2- It will strengthen the exchange rate of the ruble against other major foreign currencies by forcing buyers of Russian energy products to buy rubles in the open market to pay for them.
3- It will be a huge blow against the petrodollar if Russia’s oil and gas exports are priced and sold in ruble and China’s oil imports are paid for in the petro-yuan. Between them, Russia’s oil exports and China’s oil imports account for more than 27% of the global oil trade. This will undermine the dominance of the petrodollar in the global oil trade.
4- This will encourage counties to use other currencies to work around the sanctions.
5- Moreover, Russia could ask for payment in rubles for other major exports like wheat, food materials, precious metals, fertilizers and processed uranium.
6- There seems to be a substantial chance that the US economy will lose its role as the centre of international trade and the dollar its dominant position in international trade possibly leading to a major devaluation of the dollar.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London