More than a month after Russia’s military invasion of Ukraine, Russian President Vladimir Putin signed an order on March 31 stipulating that “non-friendly countries and regions” to Russia must pay Russian gas in rubles from April 1.
The move is seen as the latest step in Putin’s efforts to boost the ruble to hedge against the impact of economic sanctions. After Russia invaded Ukraine, it was subject to widespread sanctions from Western countries, and the ruble depreciated sharply.
Regarding Putin’s natural gas “Ruble Settlement Order”, BBC Chinese sorted out five highlights:
1. What does Putin’s settlement order say?
The presidential decree signed by Putin requires that from April 1, companies from “non-friendly countries” to Russia should first open a ruble account in a Russian bank, and then pay for Russian gas purchases through this account. Otherwise, it will be regarded as a breach of contract by the Russian side, and Russian suppliers will stop supplying natural gas.
“We don’t give any product to anyone for free, and we don’t do charity,” Putin said.
He also said that paying for natural gas transactions in rubles is an important step in securing Russia’s fiscal and economic sovereignty.
2. How did the parties react?
Western companies and governments have rejected Russia’s demands to pay for gas in rubles, arguing that it violates existing contracts, which are traded in euros or dollars.
German Chancellor Olaf Scholz said German companies would continue to pay for Russian gas in euros as stipulated in the contract.
But Germany has criticized Putin’s announcement of the ruble payment order as “extortion”.
About half of Germany’s natural gas and one-third of its oil come from Russia. Germany has urged its citizens and companies to reduce consumption in response to possible shortages.
Austria, which imports about 40 percent of its natural gas from Russia, is also monitoring the market.
Under existing gas contingency plans, Germany and Austria have begun the first of three “early warning” steps, whereby the country prepares for a potential supply shortage, and the last step, the government’s introduction of gas rationing.
Bulgaria, which imports 90 percent of its natural gas from Russia, has tendered for underground drilling. Bulgaria plans to double its domestic gas storage capacity and prepares for supply disruptions.
Although the UK imports only 5% of total Russian gas imports and will not be directly affected by supply disruptions, the UK will be affected by rising prices in the global market due to increased European demand.
The British government has said it does not intend to pay for Russian gas in rubles.
3. What is the actual impact on the parties?
Since Russia invaded Ukraine, Western countries have imposed economic and trade sanctions on Russia, but because EU members rely heavily on Russian energy, they have not imposed a ban on oil or gas like the United States and Canada.
About 40% of the EU’s natural gas and 30% of its oil come from Russia. If Russia disrupts supplies, it will be difficult for EU countries to find alternatives on the international market.
For Russia, which currently earns 400 million euros a day from gas exports to the EU, if exports to the EU are interrupted, there is no way for Russia to quickly find other demand markets for energy supplies.
For the average consumer in much of Europe, Russia’s invasion of Ukraine has sent gas and oil prices soaring and household spending on energy dramatically increased.
4. Why did Putin issue a “ruble settlement order”
Although Putin made it clear that this “ruble settlement order” is aimed at stabilizing Russia’s fiscal and economic sovereignty, critics believe that Putin’s move is an attempt to “push back the economic pressure to the West” and hope that there will be more foreign exchange demand for the ruble. May push up the value of the ruble.
In addition, some analysts believe that Putin’s move also has domestic political considerations: he wants to create a tough image of the West in Russia and save face for himself.
On April 1, Russia again stated that the order to pay for gas in rubles is irreversible, but Russia will not immediately cut off gas supplies to Europe and will continue to deliver gas while the ruble payment issue is pending.
5. What’s next?
Analysis by Faisal Islam, BBC economic affairs editor:
For the Kremlin, the ruble settlement order was meant to signal a massive escalation in the economic war between the West and Russia over the invasion of Ukraine.
Market reaction, however, suggested that the details of the settlement order meant that, in practice, customers importing Russian gas would have to use Russia’s state-owned Gazprombank to exchange rubles. In fact, the EU has long excluded the bank from the sanctions list in order to ensure the continuity of energy trade.
As a result, natural gas prices, while still high, have not risen vertically today. Both sides still seem to have a workaround.
At the end of the day, even at the height of the Cold War, Russia’s energy supply to the West was uninterrupted, as Russian officials have said repeatedly for decades.
Moreover, in the end, Russia still needs the money in exchange for natural gas exports, and still hopes that once a peace agreement with Ukraine is signed, its main export products will still retain a possible export market.
However, this could also be seen as an escalating threat from Russia to stop gas supplies.
For EU countries, many already have emergency measures in place to manage the demand for energy, and, now at the turn of spring and summer, are more willing to deal with this energy situation than in the cold winter.