On Wednesday, Russian President Vladimir Putin said that gas sales to countries deemed unfriendly to Moscow would have to be paid in rubles. He noted that illegitimate decisions by a number of Western countries to freeze Russia’s assets destroyed all confidence in their currencies. Therefore “unfriendly countries” will have to pay for Russian gas in rubles, Putin said.
The value of the Russian currency, ruble immediately rose on the Moscow Stock Exchange. It rose to a three-week high of 95 rubles against the dollar, before settling below 100. It also gained 3.5% against the EU’s currency, trading at 110.5 rubles per euro.
Read also; President Buhari commissions Africa’s largest fertilizer plant
The ruble plunged to historic lows earlier this month as unprecedented Western sanctions hit the Russian economy, dropping to record lows of 132 rubles per dollar and 147 rubles per euro on March 7. In mid-February, the currency’s exchange rate was around 75 rubles per dollar and 85 rubles per euro.
Yahoo Finance reports that the Russian plans to demand ruble payments for natural gas purchases from European nations will aggravate Europe’s worst energy crunch since 1970S.
Gas prices surged more 30% after President Vladimir Putin ordered the central bank to develop a mechanism to make ruble payments for natural gas within a week at a meeting with his government.
Italy, the biggest buyer of Russian gas after Germany, said it wasn’t inclined to pay for Russia gas in rubles because it could help Putin weaken Europe’s sanction regime.
“My view is is that we pay in euros because paying in rubles would be a way to avoid sanctions, so I think we keep paying in euros,” Prime Minister Mario Draghi’s economic adviser Francesco Giavazzi said at the Bloomberg Capital Market Forum in Milan.
As of January 27, some 58% of Russian gas giant Gazprom’s sales of natural gas to Europe and other countries were settled in euros. In the third quarter of last year, 39% were in US dollars.
Earlier in March, the Russian government announced a list of 48 states deemed to be unfriendly. They included all EU member countries, the US, Japan, Switzerland and Norway.
The ‘hostile’ states accounted for some 70% of Gazprom’s 2021 export revenue amounting to some $69 billion, Dmitry Polevoy, economist at Moscow-based Locko Invest, said in an e=mailed note.
Russia needs to stop using “the compromised currencies” in natural-gas transactions in retaliation to the U.S. and European sanctions, Putin said, according to a transcript published on the Kremlin website. “It’s pretty clear that it makes no sense for us to supply our goods to the European Union, to the U.S. and receive payments in dollars, euros, other currencies,” he said.
Nnamdi Maduakor is a Writer, Investor and Entrepreneur