Home News Russian gas: Why does Vladimir Putin impose payment in rubles?

Russian gas: Why does Vladimir Putin impose payment in rubles?

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Vladimir Putin announced on Wednesday March 23 that Russia will no longer accept payment in dollars or euros for gas deliveries within the European Union. A way for the leader to respond to the financial sanctions imposed on him, as well as to raise the course of his national currency.

Almost a month after the start of the invasion of Ukraine, Vladimir Putin asked the Russian central bank and his government to establish “within a week” a new exchange rate system to impose the payment for Russian gas imports in roubles.

“I have taken the decision to implement a set of measures to switch to payment in rubles for our gas delivered to hostile countries, and to renounce in all regulations the currencies that have been compromised”, announced the Russian president during of a government meeting.

$300 billion frozen

Two reasons explain this request: on the one hand, the Russian leader intends to respond to the heavy economic sanctions imposed by many Western countries, which weigh on his country. The West notably froze some 300 billion dollars of Russian reserves held abroad, an initiative described as “theft” by the head of Russian diplomacy Sergei Lavrov.

On the other hand, imposing the acquisition of rubles on the market to carry out the transactions makes it possible to significantly raise the price of the currency, which had suffered a loss in value of nearly 30% in recent weeks.

Germany threatens to terminate contract

The effects of this announcement were immediate. The course of the currency has strengthened against the euro and the dollar, on the other hand, certain countries like Germany have denounced a requirement which would constitute “a breach of contract” and do not intend to respond favorably to this offensive.

Faced with this situation, the West still has an arsenal of sanctions with, in particular, the question of a global oil embargo, already decreed by the United States, which is still on the table and which could “plunge the economy Russian,” according to Ukrainian President Volodymyr Zelensky’s chief of staff.

For the moment, because of the dependence of many European states, Russian hydrocarbons have largely been spared economic sanctions and they continue to flow towards Europe, with several hundred million euros per day at the key to the Kremlin. Several international summits are expected in the coming days to consider a response to this offensive and to decide on potential new sanctions.

For his part, Vladimir Putin hinted that other Russian exports could be affected by the same measure. The Russian space agency Roscosmos already announced on Wednesday evening its intention to also switch to ruble settlement with its international partners, just after President Putin’s announcement.

However, some Russian companies such as the giant Gazprom could suffer from this new measure, finding themselves short of foreign currency to honor their debts in the future. Countries declared “hostile” by Russia are estimated to account for more than 70% of Russian energy exports.