Russian President Vladimir Putin said on Wednesday that Russia would start charging the countries it considers "hostile" in rubles for its natural gas.
"I have taken a decision to switch to ruble payments for our natural gas supplies to the so-called hostile states, stop using the compromised currencies in such transactions," Putin said, per a transcript published on the Kremlin website as carried by Bloomberg.
The Russian President-whose list of "hostile" states includes the United States, all EU member states, Switzerland, Canada, Norway, South Korea, Japan, and many others - has ordered the Bank of Russia, the central bank, to develop a system for payments in rubles within a week.
"At the same time, I want to emphasize that Russia will definitely continue to supply natural gas in line with the volumes and prices, pricing mechanisms set forth in the existing contracts," Putin said at a government meeting today.
It makes no sense for Russia to export goods to the EU or the United States in U.S. dollars or euros, Putin added.
The U.S. has already banned imports of Russian energy products, including oil, coal, and LNG.
Earlier this week, the foreign ministers of the EU member states failed to come to an agreement about whether to punish Putin with an oil embargo. Some small EU members, including Lithuania, pushed for an embargo, but the biggest economy, Germany, was against it.
Gabrielius Landsbergis, Minister of Foreign Affairs of Lithuania, tweeted on Monday:
"Why should Europe give Putin more time to earn more money from oil and gas? More time to use European ports? More time to use unsanctioned Russian banks in Europe? Time to pull the plug."
But Germany and the Netherlands said that the EU couldn't cut itself off Russian oil and gas right now. The European Union and its biggest economy Germany have been reluctant so far to ban imports of Russian energy or impose sanctions on Russian oil and gas exports, considering that Europe depends on Russia for more than one-fourth of its oil supply and one-third of its natural gas supply.
By Charles Kennedy for Oilprice.com
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Comments
The first is that if these so-called unfriendly countries agree to pay him in rubles they will have to buy rubles in the open market and this will strengthen the exchange value of the Russian currency against other world currencies. If they refuse, he can then halt his gas shipments to them and blame them for the disruption of supplies. It could amount to some retaliation against Western sanctions without taking the blame for it particularly that the bulk of his gas is anyway destined for China.
The second objective is that if Russia is paid in rubles at its current devalued rate, the Russian Central Bank could later sell them at a better rate when the Gulf conflict ends thus making a fortune in exchange rates alone.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
This sounds like, though his rhetoric is dramatic, he will continue to honor existing contracts and pricing mechanisms. Or in other words, he is speaking of purchases on the spot market.