What buying gas in rubles means for Russia and the West — RT Business News

Importers intrigued by change as ruble soars against dollar and euro

Russian President Vladimir Putin on Wednesday gave the country’s central bank and government a week to find a way to transfer payments for Russian gas exports to the national currency, the rouble. This prospect raised many eyebrows among Russian gas buyers, who began to speculate on exactly how it might be done and whether Russia would go through with the measure. Here are some ideas.

  1. Why the switch to rubles?
    The United States and its allies have imposed unprecedented sanctions on Russia, targeting the country’s financial system. President Putin explained that the illegitimate decisions of a number of Western countries to freeze Russia’s assets have destroyed all confidence in their currencies. Russia’s energy exports have yet to fall victim to Western restrictions, but almost all gas purchase contracts are denominated in euros or US dollars, making it a potential target. But if Russia is paid in rubles, it could escape sanctions.
  2. Which countries does this affect?
    The proposed move affects “hostile countrieswhich imposed economic restrictions on Russia. These include the United States, Canada, Australia, Japan, South Korea, and most EU states.
  3. What will happen if buyers refuse to pay in rubles?
    In this case, they will not be able to buy Russian gas, because any other currency would not be accepted. It would be a blow for Europe, which derives more than 40% of its gas imports from Russia.
  4. How to manage ruble payments?
    The Russian central bank can sell rubles to gas buyers or buy the currency on the open market. Analysts say it could also make sense for governments to hold rubles in their central banks.
  5. How will the change impact Russian buyers?
    Natural gas is used for a variety of purposes, ranging from heating and cooking to supplying power to industrial businesses. Buying less gas from Russia effectively means paying more for the product on the open market. This leads to higher costs for industries and households, higher prices for all consumer goods and a recession.
  6. What does this mean for the dollar and the euro?
    The dollar’s dominance as the world’s reserve currency could be jeopardized. Its strength comes from its connection to the world trade in oil and other raw materials. The euro faces a similar challenge to a lesser extent, but lower demand for the currency means a weakened position in the global basket of reserve currencies.
  7. What does this mean for the ruble?
    Increasing the ruble’s role in international trade would strengthen the currency, as it would be backed by Russia’s vast natural resources. With this support and due to increased demand, it could one day become a major global currency. The news of the ruble change pushed the currency to a three-week high.
  8. What are the wider implications?
    In his announcement, Putin hinted that natural gas is only the first Russian product to be sold in rubles. “I have decided to implement as soon as possible a set of measures to modify the payments for – yes, let’s start with this – for our natural gas supplied to countries supposedly hostile to Russian rubles,“said the head of state earlier this week. His choice of words raises the possibility that other Russian exports could follow, including oil, metals and grains. This would further strengthen the ruble and weaken the dollar and the euro.

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