Putin solves rouble-for-gas standoff by 'selling' retreat as victory
Russian President Vladimir Putin has announced on Thursday that he had signed a decree saying foreign buyers must pay in roubles for Russian gas from 1 April, and contracts would be halted if these payments were not made.
Before crying out load that this is not what the headline says, let's take a look at the specifics.
In order to purchase Russian natural gas, they must open rouble accounts in Russian banks. It is from these accounts that payments will be made for gas delivered starting from tomorrow,
Reuters cited Putin as saying in televised remarks.
"If such payments are not made, we will consider this a default on the part of buyers, with all the ensuing consequences. Nobody sells us anything for free, and we are not going to do charity either - that is, existing contracts will be stopped," he added.
This 'threat' does not mean much in practice. Western buyers have never stopped paying for Russian gas and they remained willing to honour their contracts, only not in roubles, but Moscow has now apparently devised a technical solution that may be acceptable for the West too.
European leaders had rejected paying for deliveries in roubles, saying it would undermine sanctions imposed because of the war in Ukraine. We are yet to see how the various European governments approve of Putin's face-saving solution.
The decree Putin signed and published by state news agency RIA Novosti says a designated bank will open two accounts for each buyer, one in foreign currency and one in roubles. The buyers will pay in foreign currency and authorize the bank to sell that currency for roubles, which are placed in the second account, where the gas is formally purchased.
With Russia supplying about a third of Europe's gas Putin holds the most powerful 'energy card', and he does try to hit back against sweeping and crippling Western sanctions over his invasion of Ukraine.
An order signed by Putin set out a mechanism for buyers to transfer foreign currency to a special account at a Russian bank, which would then send roubles back to the foreign buyer to make payment for the gas.
This cutting of the Gordian knot is a solution that will allow both Europeans and Russians to sell to domestic audiences that they have won this tussle. However, a significant change for European gas buyers is that they are ultimately creating a steady demand for roubles on the Russian market. Putin said the switch was aimed at strengthening Russia's sovereignty, and that it would stick to its obligations on all contracts.
Putin's decision to enforce rouble payments has boosted the Russian currency, which fell to historic lows after the 24 February invasion but has since recovered.
Importantly, the Russian President promised that the quantities already contracted will continue to be delivered at the prices already fixed.
Overall, this solution has significantly reduced the threats to gas supplies in Europe, although gas prices remain high for the time being because there are still uncertainties on the market.
Given that Russia intends to demand rouble payment for other export products, presumably through the above solution, demand for the rouble from other customers may also arise.
Following a telephone conversation with Putin, Italian Prime Minister Mario Draghi said today that what he understood from the discussion was that "the conversion of the payment ... is an internal matter of the Russian Federation." It seems he understood Putin just fine.
Cover photo: Shutterstock
