President Vladimir Putin has announced that Russia will demand that “unfriendly” countries pay for Russian natural gas exports only in roubles from now on.
Mr Putin told a meeting with government officials that “a number of Western countries made illegitimate decisions on the so-called freezing of the Russian assets, effectively drawing a line over reliability of their currencies, undermining the trust for those currencies”.
“It makes no sense whatsoever,” Mr Putin added, “to supply our goods to the European Union, the United States and receive payment in dollars, euros and a number of other currencies. As a result, he said he was announcing “measures” to switch to payments for “our natural gas, supplied to so-called unfriendly countries” in Russian roubles.
The Russian president did not say when exactly the new policy will take effect. He instructed the country’s central bank to work out a procedure for natural gas buyers to acquire roubles in Russia.
Economists said the move appeared designed to try to support the rouble, which has collapsed against other currencies since Mr Putin invaded Ukraine on February 24 and Western countries responded with far-reaching sanctions against Moscow. But some analysts expressed doubt that it would work.
“Demanding payment in roubles is a curious and probably ultimately ineffective approach to attempting an end run around Western financial sanctions,” said Eswar Prasad, a professor of trade policy at Cornell University.
“Roubles are certainly easier to come by now that the currency is collapsing. But exchanging other currencies for roubles will be quite difficult given the widespread financial sanctions imposed on Russia.
“The hope that demanding payment in roubles will increase demand for the currency and thereby prop up its value,” Prod Prasad added, “is also a false hope given all the downward pressures on the currency.”
Neil Shearing, group chief economist at Capital Economics, said: “It’s not an obvious move to me, since the (Russian) economy needs a supply of foreign currency in order to pay for imports — and energy is one of the few sources left.”
Despite severe Western sanctions, natural gas flows are still heading from Russia to Europe. The European Union is reliant on Russia for 40% of the natural gas it needs to generate electricity, heat homes and supply industry — a key reason why the EU has not applied its sanctions to Russia’s energy industry.
At the same time, across Europe, governments are slashing fuel taxes and doling out tens of billions to help consumers, truckers, farmers and others cope with spiking energy prices made worse by Russia’s war on Ukraine.
Vinicius Romano, a senior analyst at Rystad Energy, suggested that Moscow’s insistence on payments in roubles “may give buyers cause to reopen other aspects of their contracts — such as the duration — and simply speed up their exit from Russian gas altogether”.
