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On March 31, Russian President Vladimir Putin issued an order saying that “unfriendly” countries will be required to pay for gas transactions in rubles starting April 1, otherwise it will be considered a default. According to Gazprom’s “Ruble Settlement Order”, the purchase of natural gas from Russia and the purchase of Gazprom by unfriendly countries must open a ruble account in a Russian bank. Unfriendly countries or regions identified by Russia include the United States, the United Kingdom, EU member states, Ukraine, Japan, and South Korea. The presidential decree came into effect on April 1, and Gazprom said that Gazprom fully complied with national laws unconditionally, and that it had formally sent a notification to the relevant buyers on the same day to inform the new regulations.
The introduction and expansion of the “Ruble Settlement Order”
When the “Ruble Settlement Order” came into effect, Russia did not immediately stop supplying gas to Europe. Russian President’s Press Secretary Peskov explained that since the gas purchase cost in April should be settled in the second half of April or May, Russia will not immediately cut off gas to Europe; whether the cost of gas supply should be settled in rubles, ” Ruble Settlement Order” has no retrospective effect. It is also reported that Gazprom is considering the possibility of cutting off gas in Europe and assessing the impact.
It is also reported that Russia is considering expanding the scope of the ruble settlement order. The speaker of the Russian lower house, Volodin, said that the list of export products denominated in rubles, including oil, fertilizers, grains, coal, metals, timber, etc., will be expanded to benefit Russia. On March 30, the flow of the Yamal-Europe natural gas pipeline dropped to zero. The gas transmission volume of this pipeline accounted for 15% of the supply to Europe. On the same day, the flow of other natural gas pipelines to Europe was stable. The flow of the pipeline has returned to normal. This shows that it is not technically a problem at all to “cut off” on Europe••••••
The position of the parties involved in the “Ruble Settlement Order”
European leaders have publicly expressed their opposition to Gazprom’s “Ruble settlement order” and insisted on settlement in euros. After April 1, Germany and France may even consider further sanctions against Russia. However, given the irreplaceable importance of Russian gas to Europe, European buyers may compromise by buying rubles from the previously sanctioned central bank of Russia. The “Ruble Settlement Order” is bringing enormous pressure to Western countries, and the governments and enterprises of relevant countries are working together to urgently discuss countermeasures.
Europe’s huge energy gap requires imports of Russian gas, and there is no other alternative. Nearly 26% of the EU’s oil demand comes from Russia, and nearly 40% of its natural gas demand also comes from Russia. Specifically, Germany’s dependence on Gazprom is 49%, France is 25%, Bulgaria is 77%, Finland and Latvia are 93%, North Macedonia is 100%, and so on. As for Europe’s clean energy transition in 2024, if it is expected to be realized, then it is also “far cannot quench the thirst of the near”. In fact, Europe’s low energy reserves made it into the impact of the energy crisis in October last year, and the conflict between Russia and Ukraine finally forced Germany to terminate the completed Nord Stream 2 project. Undoubtedly, this has made the European energy situation even more difficult. To make matters worse.
On this occasion, the White House announced that it will release 180 million barrels of crude oil, or 1 million barrels per day, for three months to stabilize oil prices. The problem is that the liquefied natural gas (LNG) exported to Europe will reach 15 billion cubic meters this year, while the natural gas gap in Europe is 150 billion cubic meters, which is far from enough to replace Gazprom to fill the gap. In addition, Gazprom is pipeline natural gas, and a considerable part is directly used for power generation. The recipient of LNG imported into Europe is mainly Spain, which is used to receive LNG from the North Sea, and a large number of LNG from the United States and other countries outside Europe. Europe lacks sufficient facilities and capabilities. Even if Europe steps up construction to make up for the lack of facilities, taking Germany as an example, it usually takes 2 years for the environmental assessment of LNG terminals alone. This shows that Europe’s energy facilities and structure determine that it cannot get rid of Russian gas. Even if American Gas LNG replaces Gazprom, the price is 5-7 times higher than that of Russian pipeline natural gas. Of course, the price of natural gas has risen to $3,500 per cubic meter, a 10-fold increase. Whether it is liquefied gas or pipeline gas, gas is better than no gas.
At present, Hungary and other countries have made it clear that they will use rubles to buy Gazprom. Poland hopes to import natural gas from Norway via Denmark to meet half of Poland’s natural gas needs, but this will not be until the end of the year. Lithuania relies on its LNG terminal to abandon Gazprom.
As major European economies, France and Germany still insist on their opposition to the “Ruble Settlement Order”. The problem is that Germany and France have not come up with effective countermeasures.
“Ruble settlement order “reflects Russia’s position
In the past three decades, Russia, reborn from the ashes from the collapse of the former Soviet Union, has failed to win the trust of the West politically; in terms of security, it has been continuously squeezed by NATO’s eastward expansion; After Asia was sanctioned by the West, the outbreak of the current round of Russia-Ukraine conflict made it even more “resolute” sanctions by the West – excluding major Russian banks from the SWIFT system, freezing the assets of the Russian Central Bank, confiscation and encroachment on Russian companies and even Russian personal overseas assets, etc.; even culturally, the Western world has also set off a wave of “anti-Russian” wave•••••• Frankly speaking, the conflict between Russia and Ukraine has made the fragile relationship between the West and Russia face the danger of a complete breakdown. Russia feels a complete isolation and even exclusion from the West in terms of politics, security, economy, and culture. Among them, the economic sanctions against Russia are aimed at restricting and restricting the normal foreign exchanges of Russia’s monetary economy, and even uprooting and destroying the foundation of its monetary economic system. This situation, in fact, has reached or even crossed the dangerous threshold when the Stalin era opened the “Cold War” between the East and the West.
In the historical memory of the Russians, the Marshall Plan of post-war European revival rejected the Soviet Union, and the issuance of the West German Mark on June 20, 1948 marked that Germany, as the heart of Europe, was completely torn apart, and then It marks that the European economy was irreversibly divided into two after the war, and the East and the West “stove to eat” and lived their own lives. Since then, the anti-fascist allies who fought together in blood and blood have completely parted ways. After the short post-Cold War honeymoon, European history went round and round and bumped back to that Sunday in June 1948. Russia was froze its central bank’s overseas assets and kicked out of SWIFT. Eating, and doing the math.
The Russian position reflected in the “Ruble Settlement Order” started by Gazprom is that the “European meal ticket” – the euro, is no longer useful in Russia!
The essence of Gazprom’s “ruble settlement order”
Before the “Ruble Settlement Order” was promulgated, Russia pegged the ruble to gold, which had led to a rapid appreciation of the previously depreciated ruble. On the day the “Ruble Settlement Order” was implemented, the ruble’s value against the US dollar generally recovered to The level before the outbreak of the Russian-Ukrainian conflict. On this occasion, Gazprom’s “Ruble Settlement Order” made it more difficult to obtain sufficient rubles in the market.
In fact, there are financial channels to use euros to pay for the purchase of Gazprom, and the currency settlement between Europe and Russia is also smooth. In this regard, the Kremlin suggested that the German side open a ruble account in Gazprom Bank, and after paying in euros, the Russian bank will convert it into rubles to settle the purchase of Gazprom. However, this proposal was fundamentally rejected by Berlin. What is the reason?
The “Ruble Settlement Order” does not mean that the Russian side completely refuses to accept payment in euros or US dollars, but does not use the euro as the denomination and settlement currency. The essence of Gazprom’s “Ruble Settlement Order” is to denominate and settle Russian gas in rubles. Expanded, the price and settlement currency of trade in goods with Russia may be fully transformed into “rubles”. In terms of the proportion of the Russian natural gas market, it is estimated that there is an annual transaction value of 320 billion US dollars. In the past, transactions were mainly in euros and dollars. If it is replaced by rubles, it means that other transaction currencies will withdraw from settlement. will continue to depreciate. Even if Europe succumbs and thus accepts the revision of the euro’s position in international trade, the dollar will also be weakened by this, which is not what the United States likes. The ruble-pegged gold and the “Ruble Settlement Order” are counter-containment measures and counter-shock challenges launched by the hegemony of commodity and goods trade to the hegemony of industrial manufacturing and financial economy.
In terms of Russia’s position in global trade in goods, especially bulk commodities, Russia’s will to establish the status of the ruble-denominated settlement currency is almost unshakable, especially for its so-called “unfriendly countries or regions”, expanding the “ruble”. The scope of the settlement order” will make the Kremlin’s resolve look more like a tightening noose••••••
During the Cold War, foreign trade in the former Soviet Union was settled in major Western currencies such as the US dollar. The Kremlin placed the foreign exchange balance in European banks, forming the so-called “Eurodollar”. During the Cold War, the former Soviet Union, the initiator of the “Eurodollar”, did not seem to worry that the “Eurodollar” lying in European banks with Soviet symbols would be frozen or seized by Westerners. As the times changed, the Kremlin found that, in the eyes of the West, Moscow and Kabul were sitting in the same compartment of the currency prisoner.
As a result, Gazprom’s “Ruble Settlement Order” may be interpreted as a countermeasure or even a retaliatory measure against Western sanctions against Russia, which is very one-sided. In fact, the “currency war” has already started, and the main battlefield has been set by the “Ruble Settlement Order” in the competition for the settlement currency of the Russian-European natural gas trade.
In December last year, the exchange rate of the US dollar to the ruble was 1:76; before the war, the exchange rate was 1:81.6; after the conflict between Russia and Ukraine, the exchange rate was 1:137, and the ruble was almost halved; on April 1, the day the “Ruble Settlement Order” was promulgated , The exchange rate of the ruble against the US dollar reached 1:82.5, generally regaining lost ground. However, it’s just the beginning••••••
Energy shortage + ruble settlement = euro collapse?
Europe plans to reduce Russia’s energy demand to zero by 2024 by adopting clean energy. Leaving aside whether Europe can achieve this goal, it needs to be clear that before this goal is achieved, what role should Russia play?
The import of cheap Russian energy such as natural gas, oil and coal into Europe has fundamentally boosted the European economy and established the industrial economic miracle of Germany, the largest economy in Europe. It should be noted that the German economic miracle is based on low-cost power generation, and now Germany is implementing power curtailment measures and implementing a power distribution system. As a result, some politicians even appealed to the public to wear an extra sweater to keep out the cold to fight against Russia, and some officials called for sufficient Russian wheat to prevent children from starving. Currently, the Fish and Chips chain in the UK is facing widespread closures due to a lack of Russian fish, and Spain’s sunflower oil is out of stock (Russia accounts for 62% of global sunflower oil exports), and the backlash effect of economic sanctions against Russia continues to spread. Come on. Energy shortages in Europe are only part of the backlash against Russia’s economic sanctions.
In 2020, trade between the EU and Russia exceeded $174.3 billion, and European imports from Russia totaled $95.3 billion. Energy exports monopolize 70% of the EU’s total imports from Russia, followed by agriculture and primary raw materials with 4.5%, steel and iron with 4%, and chemical materials with 4%. In 2021, the bilateral trade volume between Russia and Europe will reach 282 billion US dollars, accounting for 35.7% of Russia’s total import and export. In 2019, European direct investment in the Russian market exceeded $311 billion, while Russian direct investment in Europe was only $136 billion. Separately, according to the ECB, Russia’s total debt to European banks exceeds $60 billion. On paper, as Russia’s largest trading partner and largest source of overseas investment, Europe seems to be able to control Russia’s economic fate. However, structurally, Russia is already at the bottom of its economic and trade relations with Europe, or its currency disadvantage has already near limit. Especially after the previous external economic sanctions, Russia seems to have nothing more to lose in the economic friction and conflict with the West.