Vladimir Putin Wants Europe to Pay for Gas in Rubles
European natural-gas prices shot higher and the ruble strengthened after Mr. Putin called for payments in the local currency
Russian President Vladimir Putin said he wants his country to only accept rubles in gas deals with European countries and other customers, adding a new financial dimension to tensions over energy supplies while the war in Ukraine rages.
Mr. Putin said that Russia will refuse to accept payment for natural gas supplies in currencies “that have compromised themselves,” including dollars and euros, and will switch to payments in rubles, state newswire TASS reported.
“I have decided to implement a set of measures to transfer payment for our gas supplies to unfriendly countries into Russian rubles,” Mr. Putin told a government meeting.
Gas prices in Europe rose after Mr. Putin’s remarks, with Europe’s regional gas benchmark, the TTF month-ahead contract, rising 19%, though still below the highs it hit in the days after Russia invaded Ukraine. Brent crude oil prices also rose around 5% to above $120 a barrel.
Russia supplies around 40% of the EU’s natural gas, a dependency that has cast a shadow over Europe’s response to the war. European leaders have scrambled since the war broke out to reduce the region’s reliance on Russian energy. It is a process that will likely take years.
Mr. Putin said that Moscow would continue to supply gas in accordance with existing contracts. Russia’s list of so-called unfriendly countries includes EU members, the U.K., the U.S. and others.
Most global commodity deals are conducted in dollars—and to a lesser extent euros—and it is unclear how Russia could force its biggest customers to change. Sourcing rubles for Western utilities could be difficult if not impossible. Trading in the Russian currency has been severely hampered by Western sanctions as well as Russia’s capital controls, which seek to prevent capital flight from the country.
Payments for energy supplies were granted specific carve-outs in U.S. and EU sanctions to ensure the flow of energy and dollars could continue. Western nations designed sanctions to create maximum pressure on Russia’s economy without boomeranging back on themselves.
In practical terms, even if buyers of Russia’s energy switched payments to rubles, there may be little actual effect. Russia has already asked its companies that take payment in dollars and euros to swap 80% of their revenue into rubles, a way to create demand for the currency.
Once Russia’s government takes hold of dollars generated through energy sales, however, sanctions on Russia’s central bank have limited the country’s ability to use them.
Russia’s Foreign Minister Sergei Lavrov said Moscow was surprised by the sweep of Western sanctions.
“When the central bank’s reserves [were frozen], no one would think, out of those who made predictions, what sanctions the West might apply,“ he said on Wednesday.
The Russian ruble gained 6% to trade at around 99 rubles to the dollar after Mr. Putin’s remarks.
Mr. Putin directed the central bank and the government to determine the procedure for such transactions within a week.
Mr. Putin is trying to get Western countries who have sanctioned the
central bank to transact with it, said Timothy Ash, emerging markets strategist at BlueBay Asset Management.
“But this will just make it more difficult to transact with Russia for energy supplies,” Mr. Ash wrote in a note to clients. “It will just accelerate diversification away from Russian energy.”
Jason Tuvey, a senior emerging markets economist at Capital Economics, said that the move was likely aimed at boosting the ruble and reducing Russia’s reliance on Western financial infrastructure. However, the downside is that it would reduce Russia’s already diminished inflow of hard currencies needed to pay for imports.
“Ultimately, I guess this simply reinforces the idea that Russia will continue its drift toward autarky,” Mr. Tuvey said, referring to an inward-looking economic system that seeks to diminish ties with the outside world.
