Russian President Vladimir Putin announced Thursday, March 31 on television that countries hostile to Russia will have to have accounts in rubles to pay their gas bills from Friday. However, the price of gas remains denominated in the currency of the current contracts, usually in euros or dollars.
Vladimir Putin added that, in case of refusal, “ongoing contracts will be stopped”. He recalled that this measure was a response to the freezing of some 300 billion dollars of foreign currency reserves that Russia had abroad, a sanction decided by the West in retaliation for the offensive in Ukraine. Therefore, imposing the purchase of rubles on its customers “strengthens economic and financial sovereignty” of Russia, according to the Russian President.
Moscow published a list of countries in early March “unfriendly” which notably includes the United States, members of the European Union (EU), the United Kingdom, Canada, Japan, Switzerland, Taiwan, South Korea, Norway and Australia.
Mr Putin insisted that paying in rubles would have no effect on volumes or prices, which are formulated in most contracts in foreign currencies. De facto, as the Kremlin explained Thursday morning, buyers will have to carry out a foreign exchange transaction in Russia.
“For whoever receives the Russian gas, who pays for the deliveries, there is in fact no change. They just acquire rubles for the amount of currency that is provided for in the contract”, underlined Dmitry Peskov, spokesman for the Kremlin. He said Putin and German Chancellor Olaf Scholz, along with their advisers, discussed the new system in detail on Wednesday.
The German Chancellor nevertheless assured Thursday that payments will continue to be made in euros. “It is written in the contracts that payments are made in euros and sometimes in dollars”explained Mr. Scholz during a press conference with his Austrian counterpart, Karl Nehammer. “I made it clear to the Russian president that it would stay that way” and “companies want to be able to pay in euros and will do so”he added.
Reduce dependency
Russian gas is crucial for the EU, which has been seeking since the beginning of Moscow’s offensive in Ukraine to get rid of this dependence. The Twenty-Seven now want to make joint purchases of gas, and the United States will increase its deliveries of liquefied natural gas (LNG) to Europe.
“There may be a situation in which tomorrow (…) there will be no more Russian gas” and “it is up to us to prepare these scenarios, and we are preparing them”French Economy and Finance Minister Bruno Le Maire said in Berlin during a press conference with German Economy Minister Robert Habeck.
In addition, the European Commission carried out surprise inspections in Germany at the premises of Gazprom, which it suspects of having raised gas prices in Europe by abusing its dominant position.
The decision to switch to ruble invoicing should allow Russia to support its national currency, which has been heckled by sanctions, but will deprive it of a source of foreign currency. Already, Russia obliges its exporters, including Gazprom, to convert 80% of their turnover into roubles.
These measures and a key interest rate of 20% enabled the Russian currency to recover. After dropping considerably in the wake of the start of the Russian offensive on February 24, it is back to levels close to those before the assault.
According to figures from the Russian Central Bank, its reserves – which still include the blocked 300 billion – increased, between February 18 and March 25, from 643.2 to 604.4 billion dollars, giving an idea of the amount of its intervention to support the Russian economy for a month.