It is unclear whether it intends to overturn existing contracts that set prices in euros or dollars, but Germany, which relies on Russia for 40 percent of its gas supplies, is not taking any risks, warning large industrial gas users that there is a stalemate. is possible and the coupons are a possible outcome. Here we ask why payment for Russian exports in rubles has become a major issue for the Kremlin and whether Putin could expand the plan to include exports of oil, grain, fertilizer, coal, metals and other commodities.
Why does Putin want to pay in rubles?
In the aftermath of the Russian invasion the value of the ruble fell off a cliff. It fell from about 85 euros last year to 110 as tanks crossed the Ukrainian border. Only one intervention by the Russian central bank was 94.1 per euro. With the ruble trading at such low levels, Russian exports were to generate less money to subsidize government services and finance the war than previously expected. A higher value ruble will not only bring in more cash, but it is also a matter of pride that trading countries are willing to pay for Russian exports in Russian currency. A larger reservoir of rubles, created by demand from foreign countries and companies for Russian goods, would allow Moscow to challenge US dominance over the dollar in world money markets, although it is unclear why China would support a such a plan. Some analysts also speculate that the dollar and euro are less useful to Moscow as sanctions become tougher. For example, without access to dollars and euros through international trade, Russia also proposes to pay interest on its debts in euros in rubles.
Which countries does Putin expect to pay for gas in rubles?
Russia’s list of “unfriendly” countries corresponds to those that have imposed sanctions. Agreements with companies and individuals from these countries must be approved by a government committee. Countries include the US, EU Member States, the United Kingdom, Japan, Canada, Norway, Singapore, South Korea, Switzerland and Ukraine. Some, including the United States and Norway, do not buy Russian gas.
How big are Russian exports to the EU?
In 2020, the EU was Russia’s main trading partner, accounting for 37.3% of the country’s total trade in goods with the world. Russia, meanwhile, was the EU’s fifth largest trading partner, accounting for 5.8% of the bloc ‘s total trade. However, this obscures the important fact that Russian gas is an important feature of these imports, most of which are paid in dollars, euros or pounds. According to Gazprom, 58% of its gas sales in Europe and other countries on January 27 were settled in euros. US dollars accounted for about 39% of gross sales and sterling for about 3%. World commodities are largely traded in dollars or euros, which together account for about 80% of the world’s foreign exchange reserves. In practice, while gas imports to the EU from Russia are volatile, they amount to up to € 800 million (6 680 million) per day.
How did Putin exert his influence?
It was not enough for Russia’s central bank to buy rubles to support the currency in its darkest hours after the invasion. The central bank’s effective ban on the use of the Swift payment system for access to its assets held abroad meant that this intervention could not last. The central bank wanted to sell investments in dollars and euros to buy rubles, increasing demand and therefore price, but without access to Swift it could not continue on a sufficient scale. Another route found. An instruction was struck to exporters, including producers of goods, forcing them to convert into rubles 80% of the foreign currency they receive from export sales. The Kremlin is now considering plans for all ruble export sales, taking advantage of its near-monopoly on basic raw materials in production processes, from fertilizers to cars. Subscribe to the daily Business Today email or follow the Guardian Business on Twitter at @BusinessDesk An example is nickel, which car companies use to make catalysts. About 40 percent of the world’s metal supply comes from Russia, and 90 percent of Russia’s production goes to the auto industry, says Paul Watters, head of corporate research at S&P Global Ratings. If automakers are forced to choose between buying nickel in rubles or looking elsewhere for supplies, it is likely that politicians who want to isolate Russia will be told to look elsewhere. Watters fears the result could be the closure of car factories.
Could the plan fail?
If the Kremlin insists that current contracts in euros and dollars change into rubles, it will violate international protocols. This is not something Gazprom relied on, even during the Cold War, when tensions between the Soviet Union and the West escalated. Germany has said it is ready to worry about energy supplies instead of paying for gas in rubles, which is likely to plunge the EU’s largest economy into recession but deny Russia extra cash. The Kremlin move is also likely to accelerate the move away from Russian goods, adding to the country’s already dramatic economic decline.
