Russian Rouble Rebounds as Enforcement of Gas Payments in Roubles is Made

In order to regain some control over their currency in the face of massive sanctions, Russia has just employed a new strategy. All gas payments must be made in roubles starting Friday, April 1st. This has already seen a significant recovery in the global value of the rouble, within hours of the decree being made.

Russian rouble rebounds

From Reuters:

Russian President Vladimir Putin said on Thursday that he had signed a decree saying foreign buyers must pay in roubles for Russian gas from April 1, and contracts would be halted if these payments were not made.

“In order to purchase Russian natural gas, they must open rouble accounts in Russian banks. It is from these accounts that payments will be made for gas delivered starting from tomorrow,” Putin said in televised remarks.

Supplying around one third of Europe’s gas, and substantially larger shares of Austria and Germany’s gas, Russia views energy as their ultimate weapon. Consequently, European leaders of industry and government are far from happy.

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Western companies and governments have rejected the move as a breach of existing contracts, which are set in euros or dollars. France’s economy minister said France and Germany were preparing for a possible scenario that Russian gas flows could be halted – something that would plunge Europe into a full-blown energy crisis.

This breach of preexisting contract, however, leaves Europe with two choices: Go without Russian gas, or submit to Putin’s whim. This power play is both practical in that it boosts the value of the rouble while giving Russia more control over their own economy, a necessary step for them in the face of the western sanction regime, and it is also retaliatory in that it puts Europe in such a precarious decision.

Europe needs Russian gas. As sanctions begin to fail, Europe and the US need to find a new strategy of dealing with Russia if they wish for containment.

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