BAKU, Azerbaijan, March 24. The announcement by President Putin that Russia will request payment for natural gas exports in rubles appears designed to support the currency, but may end up intensifying strains in the country’s balance of payments, Trend reports with reference to the UK-based Capital Economics research and consulting company.
“Our take is that it seems to be an effort by the Russian authorities to apply pressure on Western countries by forcing foreign buyers of Russian gas to use rubles, with the added benefit of supporting the value of the currency. The Russian central bank has been given a week to find a solution to the payment and Gazprom has been asked to alter gas contracts,” said the company in its recent report.
Since the announcement, the ruble has appreciated by 5 percent or so against the dollar to 90/$. It follows measures taken by Russian policymakers in the days after the outbreak of the war in Ukraine to force Russian exporters to convert 80 percent of their FX earnings into rubles. This decision will further reduce their foreign currency income, says the company.
“There are a number of questions about what this means for exports. President Putin explained that Russia will continue to supply gas in accordance with the terms of existing contracts, but the German Economy Minister has argued that any demand to pay for gas in rubles would represent a breach of contract. It’s unclear how Western countries will be able to access sufficient rubles to fund gas imports, or even whether they’d be willing to pay in rubles. The measures taken by Russia may also be interpreted as provocative and may increase the possibility that Western nations tighten sanctions on Russian energy,” analysts of Capital Economics believe.
For Russia, gas exports to the EU amount to $30-40bn per year.
“The immediate consequence of any move to invoice in rubles would be to eliminate a source of foreign currency at a time that export revenues have been hit hard by sanctions. This in turn would intensify pressure on Russia’s balance of payments and accelerate the pace of import compression (and the necessary squeeze on domestic demand). The longer-term implication is that is accelerates Russia’s strategy of de-dollarisation,” the report says.
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