Putin’s push for ruble payments for natural gas exports isn’t strictly about economics, experts say

The demand for Russia to be paid in rubles for its natural gas exports appears to be driven by a combination of domestic and geopolitical factors that go beyond narrow economic concerns, experts say.

Western sanctions enacted since the Russian invasion of Ukraine on February 24 have exerted sustained pressure about its economy. But the war has not stopped Russia’s natural gas exports to Europe, nor the continent’s dependence on them in general.

That intertwined relationship is at the crux of the recent lawsuit. Russian President Vladimir Putin that “unfriendly” countries pay for their gas in rubles.

“This is an unorthodox tactic that hinges on Europe’s dependence on Russian natural gas exports,” Eswar Prasad, a Tolani senior professor of trade policy and professor of economics at Cornell University in Ithaca, said in an email. New York.

Demand and also concerns

Russia is Europe’s largest supplier of natural gas, providing about 40 percent of what Europe consumes. This dependency is longstanding. as well as concerns about the arrangement.

Pierre Noël, a global researcher at the Center for Global Energy Policy at Columbia University in New York, points out that the main tensions between Europe and Russia are rooted in Moscow’s foreign policy, as opposed to Russia’s willingness to sell natural gas. to your neighbors.

A food delivery courier passes a high-end fashion boutique in Moscow on Friday that has been closed due to sanctions. (The Associated Press)

“The import of Russian gas has never in itself created any security problems,” Noël said by email.

“The problem is that Russia’s foreign policy orientation became increasingly assertive from the early 2000s onwards. It’s a problem that Europe would have had even if it hadn’t been an importer of Russian energy, and the relationship energy hasn’t made it worse”.

There were calls for Europe to reduce its dependence on natural gas from Russia before the current war, but Noël said “a strong consensus” has since emerged that things have to change. (The European Commission has launched a plan stop using Russian fuels, but the change would happen over the years).

“Europe has been very good at managing a large-scale energy relationship with a difficult Russia, but it doesn’t feel like continuing after this invasion,” Noël said.

Russian President Vladimir Putin chairs a Security Council meeting via video conference outside Moscow on Friday. One expert says that by demanding to be paid for natural gas in rubles, Russia is trying to show that Putin “dictates the conditions” under which Russia sells its gas. (Mikhail Klimentyev/Sputnik/Kremlin/The Associated Press)

There have also been concerns that Putin’s demand to be paid in rubles could herald a supply disruption to Europe, though if that were to happen, Russia would lose that revenue.

“Putin needs the revenue as much as Europe needs Russia’s natural gas, so this bluster will eventually resolve itself into some kind of compromise,” Cornell’s Prasad said.

Stefan Meister, director of the program on international order and democracy at the German Council on Foreign Relations in Berlin, said Russia is seeking “a kind of political victory,” not stopping the flow of natural gas.

“He wants to show that Putin dictates the conditions under which he exports gas,” Meister told The Associated Press.

Not a conventional strategy

Russia’s declared demand for a change in required payments has been rejected by European leaders, they say they are going to continue paying in US dollars and euros.

The AP reported on Friday that gas used for electricity and heating was still arriving in Europe, the same day Russia said it would start accepting payments in rubles.

Two women walk past a screen at a foreign exchange office showing exchange rates of US dollars and euros to Russian rubles, in Moscow on Friday. (The Associated Press)

Michael Devereux, a professor at the Vancouver School of Economics at the University of British Columbia, said he found the demand for ruble-based payments “a little disconcerting” as Russia ultimately needs foreign currency to be able to trade on world markets. .

Prasad expressed a similar opinion.

“Under normal circumstances, a country that is trying to shore up its currency and maintain imports from abroad would seek payments in hard currencies like dollars and euros rather than its own currency,” he said.

Russian demand for rubles, Prasad said, would “do little” to obtain those same foreign currencies.

Both Prasad and Devereux said it seemed possible that Russia could be trying to avoid sanctions through its proposed change in payments.

The ruble and its value within Russia

The value of the ruble fell sharply after economic sanctions took effectbut it has since returned to a level close to its pre-war level.

Devereux said it is unclear whether the ruble’s value is where it would be if there were more open trade with Russia, meaning it could be “significantly overvalued” at the moment.

“As a result, if European importers have to pay in rubles, they could end up paying much more than they would otherwise,” he said.

People walk past closed stores at a shopping mall in St. Petersburg, Russia, last month. (The Associated Press)

Perry Sadorsky, a professor of sustainability and economics at York University’s Schulich School of Business in Toronto, said he sees the ruble, and the perception of the ruble, as the center of thinking behind recent demand.

“The falling value of the ruble is problematic in Russia for consumer confidence and government support for the war,” he wrote to CBC News.

“By stabilizing the ruble, Putin can show the Russians that the war is going well and inflation is under control.”

Economic historian Kristy Ironside sees a potential double message at play.

One part of the message conveys the fact that the ruble is not a worthless currency and also that Russia is not dependent on access to US dollars and euros.

“It’s also telling the national population, ‘See? The ruble is recovering,'” said Ironside, an assistant professor of Russian history at Montreal’s McGill University.

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