In an attempt to help his country’s crumbling economy, President Vladimir Putin announced on Wednesday Russia will demand “unfriendly” nations pay for the country’s natural gas exports in rubles from now on.
Sanctions imposed by his opponents following the invasion of Ukraine has caused the value of the currency to plummet by about 20 per cent since February 24.
Putin told a meeting with government officials that “a number of Western countries made illegitimate decisions on the so-called freezing of the Russian assets, effectively drawing a line over reliability of their currencies, undermining the trust for those currencies.”
“It makes no sense whatsoever,” Putin added, “to supply our goods to the European Union, the United States and receive payment in dollars, euros and a number of other currencies.”
As a result, he said he had “made a decision to implement in the shortest possible time a set of measures to switch payments for...our natural gas supplied to the so-called unfriendly countries to Russian rubles”.
The list of shunned countries and territories includes Australia, the United States, Canada, all European Union countries, the United Kingdom, Ukraine, Montenegro, Switzerland, Albania, Andorra, Iceland, Liechtenstein, Monaco, Norway, San Marino, North Macedonia, Japan, South Korea, Micronesia, New Zealand, Singapore, and Taiwan.
Some of these countries, including the US and Norway, do not purchase Russian gas.
The Russian president didn’t say when exactly the new policy will take effect. The country’s central bank has been instructed to work out a procedure for natural gas buyers to acquire rubles.
Russian gas accounts for 40 per cent of Europe's total consumption — a key reason why the EU has not applied its sanctions to the country’s energy industry.
'Propping up his domestic currency'
Putin’s move means that whenever a Western country buys a barrel of oil from Russia, they are “propping up his domestic currency”, Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, told the New York Times.
“If you’re invoiced in rubles, you’ve got to go out and buy rubles,” he said.
“I don’t know if there is a workaround.”
But some analysts expressed doubt that it will work.
“Demanding payment in rubles is a curious and probably ultimately ineffective approach to attempting an end run around Western financial sanctions,” Eswar Prasad, a professor of trade policy at Cornell University, told AP.
“Rubles are certainly easier to come by now that the currency is collapsing. But exchanging other currencies for rubles will be quite difficult given the widespread financial sanctions imposed on Russia.”
“The hope that demanding payment in rubles will increase demand for the currency and thereby prop up its value,” Prasad added, “is also a false hope given all the downward pressures on the currency.”
Fears China could help Russia dodge sanctions
The Biden administration, seeking to deter China from aiding sanctions-hit Russia, on Wednesday warned Beijing not to take advantage of business opportunities created by sanctions, help Moscow evade export controls or process its banned financial transactions.
White House national security adviser Jake Sullivan told reporters that G7 countries would soon announce a unified response to make sure Russia cannot evade Western sanctions imposed over its invasion of Ukraine with the help of China or any other country.
“That's not specifically about China, but it will apply to every significant economy and the decisions that any of those economies take to try, in an intentional and active way, to undermine or weaken the sanctions that we put in place,” Mr Sullivan said while speaking aboard Air Force One en route to Brussels where President Joe Biden will attend an emergency NATO summit.
He said the US government has conveyed this message to China.
“We expect similar communication by European Union and individual European countries,” he said.
With the US determined to block Russia’s access to commercial electronics, computers and aircraft parts, there are fears China could help the country access these products by violating trade restrictions.
Do you have a story tip? Email: email@example.com.