Foreign currency rates provide a health reading on a country’s economy. This is one reason Vladimir Putin wants western Europe to pay for Russian gas in roubles, not euros. Germany refuses to participate in this stealth currency support operation. On Wednesday Europe’s biggest consumer of Russian gas began preparing to ration demand instead.
Like any niche market nationalist, Putin must despise his country’s dependence on foreign currencies. His fightback has worked short term.
A barrage of sanctions by G7 countries against Russia and prominent Russians initially pushed the rouble down by as much as 40 per cent. A directive for exporters, including commodity producers, to convert 80 per cent of inbound hard currency payments into roubles calmed nerves. The rouble has recovered most of its losses versus the euro and dollar since the invasion.
Demanding rouble payment for natural gas exports is a natural extension of that policy. It puts Germany, an increasingly unfriendly customer, at the mercy of foreign exchange markets, rather than Russia. More than half of Russian gas is paid for in euros.
But does that make any difference to cross rates? Assuming all exporters, including gas giant Gazprom, are already converting most of their income into roubles, incremental demand for the currency would be modest. Russia earned an estimated $340mn daily just from its gas sales in the few weeks following the invasion, according to energy consultants ICIS.
Payments are now propaganda as well as cash flow, however. Putin may see roubles from Europe as helping repair the shredded credibility of Russia’s financial system. Russia wants the money to go through Sberbank and Gazprombank, which the west has spared from tough sanctions in return for Russian gas.
But Putin, by insisting on roubles, has committed a PR blunder worse than his lonely TV appearances amid the sterile emptiness of Kremlin state rooms. The move breaches contracts that specify euro or dollar payments. Russia complied with delivery contracts even during the tense Cold War of the late seventies and early eighties. Supply interruptions in 2006 and 2009 are considered embarrassing aberrations by Gazprom, says one Russian energy expert.
The weakness of the tactic is underlined by German plans to ration gas and to speed up substitution of Russian energy from other sources. Any short-term fillip to the rouble will be outweighed by longer term damage to Russia’s credibility as a counter party.
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Source: Financial Times