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Ruble Or Nothing: How Russia Is Trying To Blackmail The West Again

In an attempt to shore up its failing economy, Russia is trying to blackmail the West and asking to be paid in rubles for its natural gas. However, such a move is unlikely to help Moscow in the long-term. And the important question still remains of how the EU will manage without Russian gas.

Photo of a woman walking past the office of Sberbank in Moscow

Walking past a Sberbank office in Moscow

Oleksandr Decyk


KYIV — Russia announced earlier this week that it was working on practical arrangements for natural gas to be paid in rubles, as a response to the West’s sanctions over the war in Ukraine. Europe has so far refused to resort to the Russian currency to purchase gas — and this payment stand-off with Russia has prompted European fears and warnings over possible gas supply disruption.

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Putin’s reasoning? It makes no sense to deliver goods to the E.U. and the U.S. and receive payments in dollars and euros, the Russian president said, adding that he was determined to solve the issue by the end of March.

Although this decision in favor of the ruble may have short-term positive effects on the Russian economy, it may end up costing the Kremlin dearly.

Price of the matter

Every day, Europeans import gas from Russia for about $800 million. According to Reuters, at the end of 2021, Gazprom sold 58% of its exports to Europe in euros, 39% in U.S. dollars, and 3% in pounds. Russian gas was also actively purchased in Asia: For example, Japan imports 7.2% of the total exports of Russian gas.

Russia expects that the ruble surge will be able to disrupt the arrangements for joint gas purchases and cause discord in the EU, because it is well aware that, unlike oil, gas is very difficult to replace in the short term.

They simply do not have that amount of rubles.

However, even if the Europeans want to, it is unlikely that they will be able to comply with the conditions of the aggressor country for purely technical and not political reasons. They simply do not have that amount of rubles — about 1 trillion rubles per month just for gas (the entire amount of money in Russia is 65 trillion rubles). Since the Russian currency was not intended for this purpose, the ruble is simply not available for international trade.

In addition, to pay in rubles, the EU has to theoretically buy rubles, which is not possible due to the sanctions. Although there is another option to receive rubles: to wait to receive payment for Russian Eurobonds in rubles, as the occupiers are already proposing. In principle, this could allow the Russian Federation to avoid a default.

However, these plans directly violate the terms of the signed contracts. The Europeans will not refuse the contracts willingly. And they do not change their conditions.

Separately, there is the issue of the exchange rate. The ruble is dropping almost daily, and it is unlikely that the occupants will be able to force the EU to pay at the pre-war rate.

The West's reaction

Head of the European Commission Ursula von der Leyen called Putin's statements blackmail. "Such a decision would be a unilateral decision, which is a violation of the terms of the agreement,” she explained. This is an actual attempt to bypass the sanctions. We did not impose sanctions for them to be canceled. This very position was voiced by representatives of practically all EU countries.

Slovenian Prime Minister Janez Jansa said that no one in Europe pays for Russian gas in rubles. "I don't think anyone in Europe knows what the ruble looks like," the politician said.

In Germany, the largest consumer of Russian gas in the EU, the minister for economic affairs stated it even more bluntly: Payment for gas in rubles means violating the contract. In this case, Gazprom could face a fine.

The Japanese government has asked companies that buy Russian energy not to comply with Russia's demand to make payments in rubles, the Secretary-General of the Cabinet of Ministers of Japan, Hirokazu Matsuno, told journalists.

How the markets reacted

At the same time, on Monday, March 28, it became known that Tokyo stopped operations with the Central Bank of Russia, which means freezing its reserves at the Bank of Japan. Assets of the Central Bank of Russia in Japanese yen are estimated at approximately $33 billion.

So far, only Moldova has publicly announced it was prepared to use rubles. Meanwhile, more and more European companies are refusing to buy Russian gas. Therefore, statements about the transition to the ruble will only accelerate this process. In the middle of March, the German energy concern E.ON announced that it would no longer buy gas from Gazprom's traders. Earlier, on March 8, the energy giants Shell and BP announced their refusal to buy Russian oil and gas.

After the key EU countries effectively rejected Putin's ultimatum, Gazprom stock plummeted in price on the Moscow Exchange, causing a decline among major exporters. The value of Gazprom stock decreased by 12.2%, or 732 billion rubles.

Photo of credit card logos in the window of a shop in St. Petersburg.

A Russian bank in St. Petersburg.

Igor Grussak/dpa/ZUMA

Will the EU be able to do without Russian gas?

But the EU leaders promised not to stop buying Russian gas immediately, but in the next few years. And not just gas but also Russian energy resources in general.

"If we succeed, by the fall we will be independent of Russian coal, and by the end of the year — even independent of Russian oil. The gas situation is more complicated because we do not have our capacity to import natural gas," recently announced Robert Habeck, the German Vice Chancellor.

The EU and other markets will be forced to look for an alternative to the inadequate "partner" more quickly.

"We want to reduce our dependence on Russian gas and oil because we are very dependent on them. Now it seems that they are an unreliable partner. That's why we want to diversify our sources and the Middle East plays a great role," Josep Borrell, Foreign Affairs representative of the EU, said during a press conference on Feb. 28.

According to the International Energy Agency, the EU purchased 155 billion cubic meters of Russian gas in 2021 (45% of European gas imports of over 150 billion cubic meters of gas and close to 40% of the gas consumption).

Gazprom supplies natural gas to many countries in Eastern, Central, and Western Europe. The European Union is preparing for a possible suspension of natural gas supplies from Russia. "We take the current situation very seriously," a high-ranking official of the European Commission told the German newspaper FAZ on Tuesday on the condition of confidentiality.

According to him, the European Union is ready for such a development of events because such a scenario has long been considered possible. The European Commission urged the EU member states to be ready to implement the previously prepared contingency plans if Russia stops supplying gas. In Germany, the government approved such a plan in January 2017.

The consequences of "ruble" blackmail

The Russian Federation has already harmed its image as a reliable partner. The EU and other markets will be forced to look for an alternative to the inadequate "partner" more quickly.

Such political steps therefore only have one consequence for the aggressor: the loss of markets and revenues.

Most of all, if the supply of Russian gas is cut off, its biggest consumer in the EU, Germany, will suffer. Every year, it imports about 50 billion cubic meters of gas from Russia, about 50% of total imports. According to ECONtribute, if imports from Russia stop, Germany will be able to replace only 20% of the gas consumed by increasing the consumption of coal. In this case, the gas deficit is 30% and will affect German households, industries and services.

In particular, according to ECONtribute research, a sharp halt in imports of energy from Russia to the Netherlands could lead to a 3% decline in German GDP. At the same time, the economy of the Russian Federation will fall by 25%.

The Kremlin is threatening to stop supplying gas — and has actually already stopped supplying gas through the Yamal-Europe pipeline that runs through the territory of Belarus and Poland to Germany.

All of these commodities form the basis of Russia's exports. In particular, oil and gas revenues accounted for 36% of all revenues in the federal budget of the Russian Federation.

If the Kremlin makes the switch to rubles in foreign trade, it will impose an embargo on its key exports, outstripping the EU and the United States, which have not yet ventured to sever economic ties with Putin.

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