Putin no longer wants dollars and euros for Russian gas delivered to the EU

Europe 1 with AFP 5:37 p.m., March 23, 2022

Russian President Vladimir Putin announced on Wednesday that Russia will no longer accept payments in dollars or euros for gas deliveries to the EU, giving Russian authorities a week to work out a new ruble system.

"I have taken the decision to implement a set of measures to switch to payment in rubles for our gas delivered to hostile countries, and to renounce in all regulations the currencies that have been compromised," said the Russian president during the meeting. of a government meeting, explaining that it was a reaction to the freezing of Russian assets in the West because of its offensive in Ukraine.

The Russian central bank will establish the new system within a week

Vladimir Putin asked the central bank and the government to establish "within a week" the new system which must be "clear, transparent" and involves "the acquisition of rubles on the Russian exchange market".

This announcement had an immediate effect on the Russian currency, which strengthened against the euro and the dollar, whereas it had collapsed on February 24 and the entry of Russian forces into Ukraine.

The Ukrainian presidency quickly denounced "an economic war" waged by Moscow to "strengthen the rouble".

"But the West could hit Russia with an oil embargo that would plunge the Russian economy," Andriy Iermak, chief of staff to President Volodymyr Zelensky, warned on Telegram.

"This will now be a key economic battle, and the West must collectively win it."

>> READ ALSO

- Sanctions: what economic consequences for Russia?

Other Russian exports may be affected

Vladimir Putin also hinted that other Russian exports would be affected, as the West froze some $300 billion in Russian reserves held abroad, a measure that Russian Foreign Minister Sergei Lavrov called a “theft”. Wednesday.

“It is clear that delivering our goods to the EU, the United States, and receiving dollars, euros, other currencies, no longer makes sense for us,” Vladimir Putin said.

For now, Russian hydrocarbons have been largely spared heavy Western sanctions against Russia.

Admittedly, Washington has decreed an embargo on Russian gas and oil.

But the latter continue to flow afloat towards Europe, very dependent on Russian hydrocarbons and the first market for Moscow.

But the European Union is now also considering an embargo on Russian oil.

Russia has been advocating de-dollarization of its economy for years

Several decisive international summits are expected which suggest new Western sanctions.

Moscow, for its part, has been advocating for years the dedollarization of its economy, in order to reduce its vulnerability to sanctions.

In March 2019, the Russian public gas giant Gazprom announced its first sale of gas in rubles to a European company.

"It is absolutely obvious that without Russian hydrocarbons, if sanctions are imposed, gas and oil markets will collapse. Rising prices for energy resources can be unpredictable," Deputy Prime Minister Alexander Novak said on Wednesday. in charge of Energy.

Ukraine denounces "an economic war"

After Vladimir Putin's announcement, Alexander Novak said that "we must move more actively to trade in national currencies" deemed "more reliable" than dollars and euros.

It is "a historic decision (...) A step towards the dedollarization of our economy", welcomed Viatcheslav Volodin, president of the Duma, lower house of Parliament.

The Ukrainian presidency quickly denounced "an economic war" waged by Moscow to "strengthen the rouble", while calling for a European oil embargo.

Will this decision support the ruble in the long run?

“As is often the case with Putin, it is difficult to know what the main objective is,” said Craig Erlam, analyst at Oanda.

Little "positive" for the ruble, says expert

Timothy Ash, an analyst at Blue Bay Asset, finds it "difficult" to see any positive for the rouble.

According to him, Putin is "essentially trying to get Western countries that have sanctioned the Central Bank of Russia to deal with it. But that will only complicate dealings with Russia for energy supplies. It will only speed up diversification away from Russian energy".

Does the conflict in Ukraine deal a serious blow to the role of the dollar?

This is "far from the truth", tempers Neil Shearing, principal economist of Capital Economics, in a note.

“It could accelerate the development of smaller trading blocs that use alternative currencies, but these will not match the scale and reach of the dollar.”

The danger for Gazprom

The investment group LokoInvest points out the danger for Gazprom of running out of foreign currency to honor its debts in the future.

He estimates that the countries declared "hostile" by Russia represent more than 70% of Russian energy exports in value.

But according to Andrew Weiss of the Carnegie Foundation "Putin knows how to create" very unpleasant situations for his opponents and "take advantage of them".

Wednesday's "surprise" announcement, along with the decision to cut exports via a pipeline, lifted oil to $120.