President Vladimir Putin of Russia on Wednesday said Russia will start only accepting payment in rubbles for gas deliveries to unfriendly countries which of course include all EU member states which imposed sanctions on Russia after Russia’s military operation in Ukraine began on February 24.
President Putin of Russia said on Wednesday that “I have decided to implement a set of measures to transfer payment for our gas supplies to unfriendly countries into Russian rubbles.” While addressing government officials on national television.
President Vladimir Putin says all changes should be implemented within a week as he emphasized that Russia keeps the agreement and will continue delivering gas to its customers but execpt that gas will now be priced in rubbles not in either Euros or US dollars.
The EU depends on Russia gas for 45% of its gas imports and 40% of its gas consumption. When you put those numbers into perspective, Russia is by far Europe’s largest gas supplier in the world.
In 2020, the EU was Russia’s largest trading partner accounting for 37.3% of the country’s total trade in goods with the world. 36.5% of Russia’s imports come from EU and 37.9% of of its export went to EU, the overall trade volume between Russia and EU amounted to 257.5 billion Euros.
Europe is divided about imposing sanctions on Russia’s energy sector of oil and gas due to the fact that there is no quick alternative source of oil and gas if sanctions are imposed on Russia’s energy sector because oil and gas supplies from US are not enough.
Recently, Germany announced that it had reached a long term agreement with Qatar for the supply of liquefied natural gas as it seeks alternative to Russian gas.
Although Germany signed a long term contracts with Qatar to supply liquefied natural gas to Germany, Germany energy minister says that Germany will still need Russia’s gas this year but not in the future.
Both president Putin’s rubbles payment arrangement and Germany’s liquefied natural gas deal with Qatar come at time when EU leaders prepare to meet in Brussels on Thursday to discuss how to respond to the shock of rising energy prices which have been exacerbated by Ukraine war and a desire by EU member states to cut themselves from relaying on Russian energy supplies.
We are waiting to see how Europe will respond to Russia’s new payment rules including US which owns dollar which has been the priced currency for oil and gas in the world.
The implications of president Putin’s directive can’t be understated, first oil and gas prices are going to skyrocket again. Second, if successfully, Russia will have put up another way of pricing oil and gas instead of using only the dollar system. Third, this will cause disruptions in energy markets.
The biggest consequence is the reduction of US dollars in international energy trade, that will have great implications for US and its economy in future if other oil and gas producing countries decided to start pricing oil and gas in their local currencies or another currency like Yuan or gold.
And when things reach that level, US economy will go into deep recession and may even never recover although I don’t think US will sit by and watch as oil and gas producing countries take down its economy without a fight.