The Kremlin makes a move and will force the countries that sanctioned their banks to buy rubles in order to pay for the supply of gas and oil. Russian President Vladimir Putin has ordered that this measure affect all “countries hostile” to his government, including Spain. “Some Western nations have taken several illegitimate decisions on freezing Russian assets in recent days. In reality, the Western collective has drawn a line in the reliability of its currencies, it has ended confidence in them, ”said the president during a meeting with several members of his government.
Beyond the political blow of forcing the countries that have isolated the Russian financial system to deal with it again in order to acquire hydrocarbons; The Kremlin’s initiative seeks to reopen the foreign exchange tap that Western sanctions have completely cut off after the Russian invasion of Ukraine. With this measure, Gazprom’s clients will be forced to go through the cash register and exchange euros and dollars for rubles, with a more favorable exchange rate for the Kremlin. Putin’s announcement was greeted with a notable revaluation of the ruble, although the markets finally closed with an exchange rate of 112 rubles per euro, barely a 1.7% strengthening compared to the previous day.
“Suddenly, the whole world knows that, as suspected, dollar and euro obligations may be defaulted,” Putin added. “It is clear that supplying our products to the European Union and the United States and receiving payment in dollars, euros or other currencies does not make any sense to us,” added the president.
Among other punitive measures for the war, Western nations, including Switzerland, froze the hundreds of billions of dollars in the Kremlin’s foreign currency fund for emergencies, and this has been joined by various other sanctions, such as the confiscation of assets of oligarchs in their territories and the withdrawal of Visa and Mastercard from Russian banking. In response, one of Moscow’s first measures was to force exporting companies to convert 80% of their foreign currency earnings into rubles.
The Russian president has now given the government of Mikhail Mishustin and the country’s Central Bank a week to devise the way in which “hostile countries” will be able to exchange their currencies for rubles. “Russia will continue to supply natural gas in accordance with the volumes and prices set,” Putin said, “although the changes will only affect the currency of payment, which will be changed to Russian rubles.” “Unlike some partners, we value our business reputation as a reliable supplier,” added the president.
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The coup loses force if one takes into account that both the United States and the European Union had already made public that they are preparing not to depend on the Kremlin’s energy resources. The White House banned the import of Russian oil and gas on March 8. President Joe Biden recognized then that this would make consumption more expensive, but assured that “defending freedom will have a cost.” For her part, the president of the European Union, Ursula Von der Leyen, instructed member countries not to import Russian energy from the year 2027.
The community block acquires between 40% and 50% of its gas from the Slavic country, and one of its main clients until now, Germany, is facing a dilemma. Berlin described Vladimir Putin’s decision to demand payment for Russian hydrocarbon imports in rubles as a “violation of the contract”. The Minister of Economy, Robert Habeck, of the Greens, assured in a press conference this Wednesday that the announcement shows, once again, that Russia “is not a stable partner” and announced that Berlin is going to speak with its European partners the response to the Moscow announcement. Germany’s energy dependency on Russian hydrocarbons is one of the highest in the bloc. More than half of the gas consumed by its powerful industry and with which the heating of its 83 million inhabitants is heated is imported from Russia; and the same happens with more than a third of oil.
Germany is one of the countries that has so far opposed imposing an embargo on Russian gas, contrary to what the United States and the United Kingdom have decided, much less dependent on energy imports from Moscow. Berlin tries to reduce its dependency as quickly as possible by seeking alternative suppliers and accelerating the construction of regasification plants in its territory in order to be able to directly import liquefied natural gas (LNG). This Wednesday, Chancellor Olaf Scholz reiterated in a speech in the German Parliament that Germany cannot afford to cut off the Russian gas and oil tap from one day to the next because its economy would enter a recession. The powerful Federation of German Industry issued a statement reiterating the chancellor’s message. “German industry warns European countries against hasty reactions with incalculable consequences,” said its president, Siegfried Russwurm.
Precisely one of the great projects of Berlin and Moscow of the last decade, the Russian-German Nord Stream 2 gas pipeline, has been one of the main reasons for discord within the European Union all this time; a nest of problems until Putin recognized the Ukrainian breakaway republics of Donetsk and Luhansk on February 21. That movement, the precedent with which Moscow justified the invasion of Ukraine, caused a 180-degree turn in Germany, a great supporter of trade relations with the Kremlin until now. A couple of weeks later, the construction company of the pipeline, through which a molecule of gas never passed, declared bankruptcy.
For its part, Spain could notice higher energy prices due to the impact of this measure on the markets, even though it does not depend directly on Russia. According to the Strategic Reserves of Energy Products Corporation (CORES), 8.9% of the gas imported by Spain in 2021 came from the Slavic country.
“The first thing everyone is going to do is look at the fine print, because for now we only have Putin’s announcement,” said Carsten Brzeski, chief economist at ING in Germany. The term used by Habeck “insinuates the fact that there is no official contract between governments but between companies and that the conditions of that contract cannot be changed without further ado,” he adds. If Putin carries out what he announced and companies like Gazprom block payment in euros or dollars, “it will be considered a provocation and an offensive maneuver in Germany.” “The question now is whether Germany would then stop importing Russian gas or whether it will comply with the new conditions imposed by Putin,” says the expert.
The director of the Russian investment company LokoInvest, Dmitri Polevoi, published an analysis on his Telegram channel where he stressed that the modification of contracts to rubles “will entail additional burdens that will fall on gas buyers.” “In addition, the rest of the difficulties could temporarily affect the volume of exports,” added the analyst. In other words, Europe could receive less supplies than expected in the short term.
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