[Houston / London, 24th Archyde.com]-Russian President Vladimir Putin said on the 23rd that he would soon ask for the ruble to pay for natural gas to be exported to the “unfriendly country” designated by the country in connection with the invasion of Ukraine. .. There is a growing sense of caution that this may lead to tight gas supply and demand in Europe.
Gas buyers are desperately seeking clues as to how they can pay in the ruble, given that Russia and a wide range of companies in the country are subject to economic sanctions from the West. Many experts have suggested that ruble settlement may be a breach of contract.
◎ Background of change of settlement currency
The Russian economy has been hit hard by Western sanctions. However, the European Union (EU), which relies on Russian oil and gas, has not yet included energy imports in its sanctions.
According to consulting firm Randstad Energy, almost all Russian gas purchase contracts are now settled in euros or dollars.
The ruble settlement will be a factor pushing up the ruble market, which has plummeted since Russia’s invasion of Ukraine on February 24. In fact, Putin’s remarks alone rebounded the ruble against the dollar by 9%.
◎ Reason for serious problem
Europe imports about 40% of its gas demand from Russia, with payments of € 200-800 million per day since the beginning of the year.
In the market, there is widespread concern about whether each country intends to settle in the ruble or whether it can really be done, and the “Netherlands TTF”, which is an indicator of European natural gas prices, is soaring.
Adam Posen, director of the Peterson Institute for International Economics, described the ruble settlement request as “a move Putin struck to break the alliance (EU and US),” and if European countries responded to the request, ” The sanctions are in turmoil, “he wrote on Twitter.
◎Legality
Buyers say they will continue to pay in euros as the contract does not allow them to change their payment currency. In the opinion of some legal experts, it is almost impossible for Russia to unilaterally change the terms of the contract.
Tim Harcourt, Chief Economist at the Institute for Public Policy Governance at the University of Technology Sydney, said, “Contracts are made up of both buyers and sellers and are usually denominated in dollars or euros. If you say, “Pay with (rubles),” the contract will no longer exist. “
Another complication is that Western banks are reluctant to trade Russian assets.
ING Bank said, “Even if a buyer tries to pay in rubles, it can be quite difficult as many Russian banks have sanctions.” If Russia sticks to the ruble decision, it will have room to renegotiate other terms of the contract, such as terms of time.
◎ Mechanism of ruble settlement
Bulgaria’s energy minister, Nikolov, said the country could handle ruble-denominated transactions. “So there is no settlement risk under existing contracts,” he said, but did not provide details.
Claudio Galimberti, senior vice president of Lystad, said Russia could come up with a new contract that would mandate a ruble decision, but would the other government hold the ruble in its central bank? He explained that it would be necessary to procure in the market.
According to a bank executive who specializes in forex trading, sanctions are only partial, so a ruble decision is technically possible. Western buyers can pay euros or dollars to their banks, which will send money to Russian banks and ask them to “pay in rubles to Gazprom.”
However, it is not yet known whether the Russian central bank can supply rubles on a scale that European buyers can procure rubles in the market.
◎ Burden of Western Bank
“Every transaction goes through thousands of times more than usual,” he added, citing the fact that Western banks are being constrained in transactions involving Russia.
Since ruble transactions also involve foreign exchange risk, Western banks need to hedge, which increases transaction costs.
Sophia Donets, an economist at Renaissance Capital, said it would be essential for foreign banks to have access to a wide range of financial instruments, including repos and swaps, to address liquidity and foreign exchange risks. She said she was uncertain whether such measures could be used, as Russia enforced various capital restrictions and restricted foreigners from participating in the capital markets.
◎Long-term effects
The ruble may rise in the short term, but this change in settlement currency will put pressure on Russia’s ability to pay for external debt and imports, Capital Economics has told its clients.
If the ruble decision spreads to other areas, Russian commodity exporters will also have less foreign currency inflows.
On the other hand, if this method works, it could weaken the dollar’s role in international trade and have long-term implications for US borrowing and funding costs. Countries that are frequently subject to financial sanctions by the US government will move further away from dollar-denominated trade.
However, such vigilance may be a melancholy.
The former bank executive cites the repayment of dollar-denominated Russian government bonds. The Russian government flickers payments in rubles instead of dollars, but the executive said he eventually sought out repayment funds in dollars when the possibility of default was imminent. It is said that it is a strong aspect of “external pose” to shake the ruble settlement.