Wednesday, March 23, 2022

Russia accepts payment for gas supply only in rubles


In the future, customers in Germany and other EU countries will have to pay in rubles for gas deliveries from Russia. Russian President Vladimir Putin on Wednesday instructed the government to stop accepting payments in dollars or euros. Deliveries would continue to be fully guaranteed, the Kremlin chief assured in a government video conference that was broadcast on state television.

The "unfriendly states" blacklisted by Russia are affected. This includes Germany and all other EU countries, but also the USA, Canada and Great Britain.

The announcement promptly strengthened the Russian currency, which is under massive pressure. The move could therefore also aim to support the ruble exchange rate. Gas companies would first have to buy rubles on the foreign exchange market.

The central bank and the Russian government now have a week to determine the modalities for switching from foreign exchange to ruble payments, Putin said. The West itself has devalued its currencies by freezing Russian assets abroad.

"Escalation of the Economic War"

"This is an escalation of the economic war," Jens Südekum, a member of the scientific advisory board of the Federal Ministry of Economics and Technology, told the Reuters news agency. "Not many expected this broadside."

For Südekum, this represents a clear breach of contract. "There are long-term contracts for gas supplies that are denominated in dollars," said the professor at the Institute for Competition Economics at Heinrich Heine University in Düsseldorf. "If Putin now declares that he only accepts rubles, he is breaking these contracts." The West will now have to react in some way. "An embargo on energy imports from Russia has now become more likely."

If the West followed Russia's request, it would have to circumvent its own sanctions over the war against Ukraine and take rubles from the Russian central bank. "But it was actually sanctioned," said Südekum. "That's why you can't actually do that."

As a reaction to the sanctions imposed by the West, the Russian government had already decided at the beginning of the month that its own financial obligations to "unfriendly states" would only be settled in rubles. These include Ukraine, Switzerland and Japan.

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