Russia has admitted receiving payments for natural gas in rubles from “unfriendly countries”, including European countries. This decision comes in light of Russia’s efforts to enhance the value of its national currency, and put pressure on European countries by using the energy weapon in response to the West’s imposition of severe economic sanctions on it following the Russian military intervention in Ukraine on February 24.
Why did Russia resort to receiving gas payments to Europe in rubles? A study by the Future Center for Research and Advanced Studies indicates that Russia aimed at strengthening the value of the ruble and forcing European countries to buy it to pay Russian gas payments, which supports demand for it and increases its value, especially since the ruble has witnessed strong declines against the dollar, as a result of the Russian-Ukrainian war and sanctions. imposed on Russia, it was traded at levels of 119 rubles against the dollar on February 28, 2022, before recovering after the decision to reach about 83 rubles per dollar in trading today, Friday, to restore its pre-war value.
currency support
The study stated that the euro and dollar currencies mainly acquired gas payments to Europe. According to data from the Russian company, “Gazprom”, about 58% of its sales to Europe and other countries were paid in euros, while 39% of them were paid in dollars, and 3% in sterling, until Late January 2022. The EU imported 155 billion cubic meters of natural gas from Russia during 2020, which represents about 40% of the EU’s total gas imports.
Russia also aims by pricing gas in rubles to protect some institutions from sanctions, as the Kremlin decree on the mechanism for payment of natural gas payments in rubles, starting from the beginning of this April, stipulated that foreign buyers open accounts in “Gazprom Bank” in rubles, so that the bank would convert currencies. The foreign currency is transferred to the ruble in the buyers account and then the money is transferred to the Russian government.
With this decision, Moscow is forcing European countries to exempt the bank from Western sanctions, which is the third largest Russian bank in terms of the volume of assets, and the volume of its clients reaches 5 million clients, according to the study.
Moscow also aims to put pressure on Europe, as some estimates indicate that Russia is trying, through its decision, to circumvent the economic sanctions imposed on it, and to use natural gas as a weapon to pressure European countries, and to dissuade them from its strict political stances towards it.
The ruble payment mechanism also aims to prevent Western governments from trying to confiscate payments in foreign currency or the accounts they pass through, according to a previous statement by Russian President Vladimir Putin.
Reconciliation of foreign transactions
With regard to the possible repercussions, the study noted that the decision to receive natural gas payments in rubles led to an improvement in the exchange rate of the Ruwais currency, and to compensate for some of its losses against the dollar, as it recorded 83 rubles against the dollar today, according to Bloomberg data.
Some experts believe that it is necessary to look carefully at the improvement in the performance of the Russian currency, as they pointed out that this improvement is fragile and unsustainable, and driven by high sentiment after the decision, more than the real improvement of the economy.
The previous opinion overlooks the fact that the ruble exchange rate has also been positively affected by other decisions taken by the Russian Central Bank recently, which included placing restrictions on individuals to purchase the purchase of hard currencies, putting an end to withdrawals from foreign currency accounts, and raising interest rates, in order to push citizens to keep the Russian currency, In addition to restricting foreign companies from withdrawing their investments or assets from Russia, according to the study.
Russia plans to use rubles or other countries’ local currencies in making payments for other Russian exports of agricultural commodities and raw materials. Some speculations are that Russian grain exporters are ready to switch to the ruble in the settlement of foreign transactions, thus freeing their dollar-denominated business from going through US banks.
Although this decision means that Russia will lose a major source of foreign currency, this will not apply to European gas payments, as European countries will hand over euros or dollars to Russia’s Gazprom Bank to buy the ruble, and thus will not lose enough foreign money to pay for imports, as Its commercial dealings with other countries will be done in local currencies, as is the case with India, for example.
The study considers that the decision to price gas in rubles paves the way, in the long term, for the implementation of Russia’s strategy of de-linking the dollar, and this comes in line with Russia’s continued attempts to promote the use of its currency instead of the dollar in making payments with its trading partners such as China, India and Turkey.
She noted that this situation will affect the position of the dollar in the long run, as a large part of the dollar’s strength is linked to the pricing of oil and gas globally, and the global trade movement is linked to the dollar, and the entry of a competitor to the dollar, the ruble bracelet or the Chinese yuan, means a decline in the dollar’s position as an international reserve currency, It has already seen a decline from about 70% to about 60% over the past 20 years, and if that decline occurs, Washington’s ability to use the global financial system to impose sanctions will decline.
In this regard, the Indian government is studying a recent proposal by Russia to use the Russian SPFS transfer system, instead of SWIFT, to complete bilateral payments and use national currencies for payment, according to the study.