Russian President Vladimir Putin’s decision to accept the payment for gas deliveries only in rubles will mean a rise in the price of natural gas, as well as put pressure on the Western financial system, banking analysts said.
Agnese Buceniece, Acting Chief Economist of Swedbank, explained that the purpose of such a decision is most likely to strengthen the weakened Russian ruble exchange rate, reduce the impact of sanctions on the Russian financial sector, as well as promote the rise of natural gas prices on the stock exchange. Both the value of the ruble and the price of gas rose on Wednesday, March 23, after this announcement.
Buceniece informed that the contract between “Gazprom” and natural gas buyers in Europe is bilateral. One party, without the consent of the other party, can hardly amend this contract by setting a new payment currency. If the buyer does not agree, the contract is very likely to be void.
The economist pointed out that Western countries are currently negotiating new sanctions against Russia in Brussels, and Moscow’s requests to change the settlement currency may speed up the withdrawal from Russian gas. However, according to her, it should be understood that the main reason why this has not been done yet is the concentration of several European countries on their own economic interests, which prevents reaching the consensus necessary for making a decision.
Even if the European side is not yet ready to give up Russian gas completely and agrees to the new conditions, switching contracts will likely take longer, predicted Buceniece. However, the gas price on the stock exchange reacts immediately, increasing Russia’s income from gas exports. Thus, the impact on the economy of Latvia and the European Union (EU) is currently in the form of more expensive gas.
On the other hand, Dainis Gašpuitis, macroeconomic expert of “SEB banka”, pointed out that such a decision by Putin is a counter-step to the introduced sanctions, deftly manipulating the remaining levers of influence. This is an attempt to indicate to the West that at certain moments Russia can still dictate conditions, which can also be brilliantly played out as propaganda material domestically.
Gašpuitis explained that this is extremely important for the Kremlin under these conditions. Such conditions put pressure on the Western financial system, which must provide the conditions by engaging with the Russian side’s financial system for potential transactions to take place. Also, such conditions complicate the implementation of sanctions. Russia can play this again as an informational campaign about the absurdity of the introduced sanctions. Gašpuitis assumed that such a step also gives Russia more effective control over foreign currency flows.
According to the economist, this step by Russia will not affect the pace with which the West will move to give up Russian energy resources. The progress of the process will be determined by how successfully alternative sources of energy supply will be found and created.
At the same time, Gašpuitis pointed out that the decision to accept payment for gas in rubles may speed up those who are not enthusiastically involved in this process at the moment.
Also, Gašpuitis noted that there is no doubt that Russia will not hesitate to make similar moves in the future.
The representatives of the Bank of Latvia previously admitted that Putin’s statement to accept the payment for gas supplies only in rubles is an unfriendly gesture without significant practical meaning, but in the long term it will contribute to a faster withdrawal of the West from Russian energy resources.
“Aside from possible additional technical complications in the settlement, this decision should be evaluated more as a symbolic and unfriendly gesture without significant practical meaning, as Russia has already decided in advance that the largest exporters, including Gazprom, should convert 80% of their foreign currency earnings to rubles ,” said the Bank of Latvia.
Also, the central bank stated that, in any case, Russia’s revenues from the sale of natural gas abroad in the foreign exchange market constantly ensure the supply of foreign currency for exchange against Russian rubles.
At the same time, according to the Bank of Latvia, in the medium and long term, this decision will contribute to an even faster withdrawal of the West from Russia’s energy resources and the sinking of the aggressor state into further poverty.
It has already been reported that Putin announced on Wednesday, March 23, that Russia will accept payments for gas supplies to “unfriendly countries”, including all members of the European Union (EU), only in rubles.
“I have decided to implement a number of measures to set payments for our gas supplies to unfriendly countries in Russian rubles,” Putin told a video cabinet meeting, ordering the changes to be implemented within a week.
He indicated that Russia will stop accepting payments in currencies that have been “compromised”.
“Russia will continue to supply gas in the amount specified in previously concluded agreements,” Putin added.
At the same time, he called the freezing of Russian assets abroad illegal.
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