Putin Demands Payment in Rubles for Russian Gas sold to “Unfriendly Countries”

I was reading about this last night and thought it was interesting and wanted to bring forward for discussion. I am not an expert in this subject and wanted to hear what you all think. (This is my second attempt to post this thread; got timed out and all deleted).

Putin is wanting payment in rubles for gas instead of USD and Euros from unfriendly countries. Apparently this announcement has strengthened the Ruble.

www.bloomberg.com...

Russia plans to demand ruble payments for natural gas purchases from European nations, deepening its standoff with the west and potentially aggravating Europe’s worst energy crunch since the 1970s. Gas prices surged more 30% after President Vladimir Putin ordered the central bank to develop a mechanism to make ruble payments for natural gas within a week at a meeting with his government.

Putin’s move showed a growing willingness on both sides to use Russian energy supplies as a weapon in the struggle between Moscow and the west over the war in Ukraine. The specifics of the new arrangement weren’t immediately clear, but by demanding payments in rubles, Putin is essentially forcing European companies to directly prop up his currency after it was sent into free-fall by sanctions placed on the Russian economy. The ruble gained 7% against the dollar Wednesday, trimming its losses this year to 23%.

For the utilities who buy gas from Gazprom, the demand to pay in rubles could lead to disputes and contract negotiations, threatening to disrupt the smooth supply of gas to the region. Europe gets about 40% of it gas from Russia and is already grappling with fallout of record prices this winter. German energy giants Uniper SE and RWE AG declined to comment, as did Italy’s Eni SpA.

“I have taken a decision to switch to ruble payments for our natural gas supplies to the so-called hostile states,” Putin said on Wednesday. The ‘hostile’ states accounted for some 70% of Gazprom’s 2021 export revenue amounting to some $69 billion, Dmitry Polevoy, economist at Moscow-based Locko Invest, said in an emailed note. Any changes to the payment procedures could “temporarily affect” Russia’s gas export volumes, he said. Russia needs to stop using “the compromised currencies” in natural-gas transactions in retaliation to the U.S. and European sanctions, Putin said, according to a transcript published on the Kremlin website. “It’s pretty clear that it makes no sense for us to supply our goods to the European Union, to the U.S. and receive payments in dollars, euros, other currencies,” he said.

Russia announced earlier this month a list of 48 states deemed hostile. They included the U.S., Japan, all European Union members, Switzerland and Norway. As a result, the bulk of Russian gas exports now go to “unfriendly” nations.

Some 58% of Gazprom’s gross gas sales abroad were in euros as of the third quarter of last year, according to the producer’s most recent bond prospectus. Another 39% were in U.S. dollars. The press office of Gazprom declined to comment on whether its long-term supply agreements allow a switch to ruble payments.

More at link.

More articles:

www.reuters.com...

www.npr.org...

www.aljazeera.com...

I am no economist, but this seems to be a smart move by Putin. Time will tell if it is successful.

It's not like he has a different option since SWIFT excluded Russia. Russia's USD and EUR reserves were also frozen.

a reply to: Salander

Its a good short play.

What it will do long term is push the EU to secure other supplies. Long term it could isolate the Russian economy further. On top of that, it puts all the economic eggs in 1 basket. That is the problem Venezuela had. All it would take to destroy Russia at that point is to ramp up OPEC, open drilling fields in the US, and inundate the market with oil to drive down the price.

Sorry f this sounds like an idiotic question but-
How does this work in practice?
I am no financial expert,but in these big oil/gas trades there is no physical money changing hands.
So what does a country like say Germany do when faced with a demand for rubles?

Isn't it as simple as converting the amount of euros into rubles on a computer?

I thought all trading is done digitally nowadays-no one turns up at Gazprom with a truck full of Euros/Dollars-so how is this a major inconveinience for Germany,or a positive for the ruble?

I don't get it-maybe thats why I never have any money..

It's partly symbolic and partly an attempt to prop up the Ruble.

However any short term gains (if any) are going to be outweighed but further longterm damage to the Russisn economy.

originally posted by: Silcone Synapse
Sorry f this sounds like an idiotic question but-
How does this work in practice?
I am no financial expert,but in these big oil/gas trades there is no physical money changing hands.
So what does a country like say Germany do when faced with a demand for rubles?

Isn't it as simple as converting the amount of euros into rubles on a computer?

I thought all trading is done digitally nowadays-no one turns up at Gazprom with a truck full of Euros/Dollars-so how is this a major inconveinience for Germany,or a positive for the ruble?

I don't get it-maybe thats why I never have any money..

They buy rubles on the market.

That is what Putin wants as it would in the short term help prop up the value of the ruble.

Russia has any many Rubles as it wants/needs, however it can't control the value of it against other currencies without inflicting a lot of domestic economic pain. Increasing external demand for rubles is a way of protecting the value of ruble .

a reply to: Onlyyouknow

Looks like Putin is wanting to be liberated with some democracy.

originally posted by: ScepticScot

originally posted by: Silcone Synapse
Sorry f this sounds like an idiotic question but-
How does this work in practice?
I am no financial expert,but in these big oil/gas trades there is no physical money changing hands.
So what does a country like say Germany do when faced with a demand for rubles?

Isn't it as simple as converting the amount of euros into rubles on a computer?

I thought all trading is done digitally nowadays-no one turns up at Gazprom with a truck full of Euros/Dollars-so how is this a major inconveinience for Germany,or a positive for the ruble?

I don't get it-maybe thats why I never have any money..

They buy rubles on the market.

That is what Putin wants as it would in the short term help prop up the value of the ruble.

Russia has any many Rubles as it wants/needs, however it can't control the value of it against other currencies without inflicting a lot of domestic economic pain. Increasing external demand for rubles is a way of protecting the value of ruble .

From the Reuters article:

According to Gazprom (GAZP.MM), 58% of its sales of natural gas to Europe and other countries as of Jan. 27 were settled in euros. U.S. dollars accounted for about 39% of gross sales and sterling around 3%. Commodities traded worldwide are largely transacted in the U.S. dollar or the euro, which make up roughly 80% of worldwide currency reserves. “ There is no danger for the (gas) supply, we have checked, there is a financial counterparty in Bulgaria that can realize the transaction also in roubles," Energy Minister Alexander Nikolov told reporters in Sofia. "We expect all kinds of actions on the verge of the unusual but this scenario has been discussed, so there is no risk for the payments under the existing contract."

www.reuters.com...

I don’t understand all the intricacies either. Do you know how this works in relation to bolded in quote?

originally posted by: Salander
I am no economist, but this seems to be a smart move by Putin. Time will tell if it is successful.

It does seem logical from his position. It sounds kind of like a check mate move against the sanctions, but I could be wrong about that because I just don’t know enough about the details of how the payment systems work.

a reply to: Onlyyouknow
I have no clue,but I am guessing the company in Bulgaria makes a chunk of money for themselves by essentially changing a $ sign to a Ruble sign on the computer,then forarding the transaction to Russia.

Could it be possible the entire monetary system is a total scam to enrich the already rich and keep the poor in their place?
I would put money on that being the case if I had any money to put on.

originally posted by: bigfatfurrytexan
a reply to: Salander

Its a good short play.

What it will do long term is push the EU to secure other supplies. Long term it could isolate the Russian economy further. On top of that, it puts all the economic eggs in 1 basket. That is the problem Venezuela had. All it would take to destroy Russia at that point is to ramp up OPEC, open drilling fields in the US, and inundate the market with oil to drive down the price.

If the countries do decide to pay in rubles for the time being and it does indeed strengthen the ruble, does it also weaken the USD and Euro causing rising prices for the exchange of currencies to rubles? Sorry if that is a dumb question- I am just curious about how wide sweeping the ramifications could/can be.

a reply to: Silcone Synapse

That is what I was just thinking too! I need to put this on my list of things to look into.

a reply to: Onlyyouknow

Any payments for oil using a currency other than the USD weakens the dollar (and strengthens our debt...most of our strategy of sky high debt balances is to off set that debt into the world market via the reserve currecy that we own).

a reply to: ScepticScot

I don't get it though. Couldn't they just take the euros and use them to buy rubles? They've already been selling foreign currency to keep the ruble from weakening. So is there an advantage to making Germany buy them?

originally posted by: Onlyyouknow

originally posted by: ScepticScot

originally posted by: Silcone Synapse
Sorry f this sounds like an idiotic question but-
How does this work in practice?
I am no financial expert,but in these big oil/gas trades there is no physical money changing hands.
So what does a country like say Germany do when faced with a demand for rubles?

Isn't it as simple as converting the amount of euros into rubles on a computer?

I thought all trading is done digitally nowadays-no one turns up at Gazprom with a truck full of Euros/Dollars-so how is this a major inconveinience for Germany,or a positive for the ruble?

I don't get it-maybe thats why I never have any money..

They buy rubles on the market.

That is what Putin wants as it would in the short term help prop up the value of the ruble.

Russia has any many Rubles as it wants/needs, however it can't control the value of it against other currencies without inflicting a lot of domestic economic pain. Increasing external demand for rubles is a way of protecting the value of ruble .

From the Reuters article:

According to Gazprom (GAZP.MM), 58% of its sales of natural gas to Europe and other countries as of Jan. 27 were settled in euros. U.S. dollars accounted for about 39% of gross sales and sterling around 3%. Commodities traded worldwide are largely transacted in the U.S. dollar or the euro, which make up roughly 80% of worldwide currency reserves. “ There is no danger for the (gas) supply, we have checked, there is a financial counterparty in Bulgaria that can realize the transaction also in roubles," Energy Minister Alexander Nikolov told reporters in Sofia. "We expect all kinds of actions on the verge of the unusual but this scenario has been discussed, so there is no risk for the payments under the existing contract."

www.reuters.com...

I don’t understand all the intricacies either. Do you know how this works in relation to bolded in quote?

It's just an energy minister trying to calm the situation if you read the next part it explains that isn't the lack of financial organisations to handle the transactions its the impact on the market of a increase in demand for rubles to cover these transactions and the complexity of multiple large customers switching over there payments (if they do).

a reply to: bigfatfurrytexan

Thank BFFT that’s what I was wondering about.

originally posted by: bigfatfurrytexan

Its a good short play.

What it will do long term is push the EU to secure other supplies. Long term it could isolate the Russian economy further. On top of that, it puts all the economic eggs in 1 basket. That is the problem Venezuela had. All it would take to destroy Russia at that point is to ramp up OPEC, open drilling fields in the US, and inundate the market with oil to drive down the price.

We need to all remember that back with the USSR the ruble was basically worthless outside of Russia, so it seems this is the direction he wants to go now. "unfriendly" counties can deal in ruble, but they will be stuck with only using that currency in Russia. Doesn't sound like a great option for these other countries.

This is so sad to watch. I wonder how many more sanctions can be placed on Russia to escalate the tensions even further?
I feel really bad for the Russian people- and us Americans, TBH.
This will be used by the Biden administration as another reason to raise our gas prices even higher.

Several nations have been hinting at moving away from the USD; if that happens, it's check mate.

originally posted by: Cutepants
a reply to: ScepticScot

I don't get it though. Couldn't they just take the euros and use them to buy rubles? They've already been selling foreign currency to keep the ruble from weakening. So is there an advantage to making Germany buy them?

Partly symbolic and partly makes it harder for any sanctions to prevent access to foreign currency (as has happened already).