The ongoing invasion of Russia on Ukraine has reached almost a month of non-stop attacks. It seems like Putin has no plans to stop and that is not only destroying the beautiful country of Ukraine but also affecting the world economy.
Russia is considered to be one of the major providers of gas and fuel. But after receiving several sanctions, Putin’s decision is to accept rubles (Russia’s official currency) for natural gas as a form of payment from the ‘unfriendly’ countries.
The Crisis of Gas
Putin is taking extreme measures that are affecting the entire world. It can be said to be one of Europe’s worst energy crises after the 1970 crisis. As per sources, Vladimir Putin has asked the central banks to come up with a mechanism that will only allow rubles as payments from countries that are not supporting Russia. The announcement was made in just a week.
In a televised meeting, Putin said, “I have decided to implement … a series of measures to switch payments — we’ll start with that — for our natural gas supplies to so-called unfriendly countries into Russian rubles.”
Since then, there has been a 30% increase in the price of gases. Besides, with this decision, the value of rubles gained a 7% increase against the dollar. If countries are willing to buy the gases with rubles, then it will increase the demand for the Russian currency and the value of it will get higher. So, this move has been taken.
As we know, a large part of Europe was initially dependent on Russia for natural gas. Germany was listed as one of the biggest buyers of natural gas from Russia. However, this announcement came as a shock since it proves to breach the existing contract between them. Even Italy is not willing to pay in rubles since it can clearly impact the sanctions passed by Europe.
If we consider entire Europe for instance, it gets around 40% natural gas from Russia. After the unreal demand of Putin, there has been a 34% surge.
Is This a Counter-sanction Against the Western Countries?
Marcel Salikhov is the president of Moscow’s Institute for Energy and Finance. He described this move as a “symbolic counter sanction” that is specifically directed to the West counties. Besides, the Kremlin is in talks with the exporters to exchange 80% of the foreign currency proceeds for rubles. It seems like Putin is using his resources to give a reply to the Western countries that are continuously providing sanctions.
As mentioned earlier, Putin has already discussed making changes to the form of payment. But he gave a week’s deadline to the central bank for making the necessary changes.
Russia has come up with the names of the countries whom it tags as “unfriendly” and this change in payment method will be specifically meant for them. The listed countries are the United States, Canada, Britain, European Union member states, Switzerland, Singapore, Japan, Norway, South Korea, and of course Ukraine.
Liam Peach who is an eminent Europe economist at Capital Economics stated, “The measures taken by Russia may also be interpreted as provocative and may increase the possibility that Western nations tighten sanctions on Russian energy.”
Earlier, Biden has announced a ban on Russian energy imports that will be active in 45-days after the existing contracts are sorted. In fact, the European countries also stated about minimizing their dependency on Russian energy. To be precise, they are looking forward to reducing the business by two-thirds this year. Besides, they want to be fully done with the Russian natural gas supply by 2030.
So, it cannot be said if this move is going to be successful or not but nations are slowly pulling off their deals with Russia. Thus, it can be said that only time can tell what’s in the line for the future.