Russian President Vladimir Putin’s decision to accept payments for gas supplies only in roubles will mean further increase of prices on natural gas. It will also exact pressure on the western financial system, according to analysts of different banks.
Acting chief economist of Swedbank Agnese Buceniece says the goal of this decision is likely to strengthen the positions of the weakened Russian rouble, reduce the influence of sanctions on the Russian financial sector, as well as promote the growth of gas prices on the market. Both the value of the Russian rouble and the price of gas promptly increased on Wednesday, 23 March, after Russia’s announcement.
Buceniece reports that the contracts between Gazprom and gas consumers in Europe is mutual. One side cannot arbitrarily change the contract by demanding payments in a specific currency.
If the buyer doesn’t agree with it, it is very possible the contract may become null and void.
The economist said the western countries’ talks in Brussels on new sanctions against Russia and Russia’s request to change the transaction currency may speed up the decision by those countries to stop using Russian gas. However, according to her, it is important to keep in mind that the main reason why this still hasn’t happened is the strong position of many EU member states on their economic interests, which makes it difficult to reach a consensus.
Even if half of Europe is not prepared to drop Russian gas and agrees to new payment conditions, contract re-negotiation will likely take a long time, predicts Buceniece. At the same time, the price of gas on the exchange reacts immediately, increasing Russia’s revenue from gas exports.
This way the influence on Latvia’s and Europe’s economy takes the form of more expensive gas.
SEB Bank’s macroeconomic expert Dainis Gašpuitis said this step by Vladimir Putin is a counter-step to the sanctions – a cunning move using still existing influence. This way Russia is trying to prove to the west that in some cases it still can dictate conditions, which can then be successfully played off in domestic propaganda.
Gašpuitis explained that this is very important for Kremlin under in the current situation. These conditions exact pressure on the western financial system, which needs to meet this condition if countries want to do business with Russia. Such conditions make the implementation of sanctions more difficult. Russia can now play it off as an information campaign about the absurdity of sanctions. Gašpuitis allowed this step by Russia will provide the country with more effective control over the flow of foreign currencies.
The economist believes this step by Russia will not affect the rate at which the west moves to stop using Russian energy resources. The process is dictated by how successfully countries find alternative energy supplies.
At the same time, Gašpuitis said the decision to accept payments for gas only in roubles may shake up the countries that are not taking active part in this process.
Gašpuitis said there is no doubt Russia will not hesitate to play out similar steps in the future.
Representatives of the Bank of Latvia admit that Putin’s announcement on payments for gas in roubles is an unfriendly gesture without any practical importance, but in a long-term perspective it will speed up western countries’ decision to drop Russian energy resources.
«Aside from possible technical complications with transactions, this decision is more of a symbolic unfriendly gesture without any practical importance, because previously Russia had already made the decision for large exporters, including Gazprom, to convert 80% of their foreign currency revenue into roubles,» said the Bank of Latvia.
Latvia’s central bank also said that in any case Russia’s revenue from selling natural gas abroad in foreign currencies ensures a constant foreign currency offer in exchange for Russian roubles.
At the same time, according to the Bank of Latvia, in a medium and long-term perspective this decision will only speed up the rate at which western countries will drop Russian energy resources, pushing the aggressor country’s deeper into poverty.
Analysts: Putin’s announcement on gas supply payments in rouble only will increase prices
