After the conflict with Ukraine and at the same time, Russia was boycotted by Western countries. Russia is trying to force the world to re-engage with the Russian economy. They choose to confront sanctions and take advantage of something that Western countries still buy from Russia, which is gas power.
The President of Russia, Mr. Vladimir Putin, ordered that starting today (March 24), gas contracts with Western countries, namely those responsible for sanctions against Russia, must be paid. The moneyis used to buy fuel in Russian local currency instead of foreign currency, the ruble.
Immediately after this announcement was made, European countries expressed difficulty with this request because the buyers of Russian gas are mainly European customers. Specifically, Europe imports about 40% of this gas from Russia, thereby paying for these bills at 800 million euros per day or 880 million dollars per day.
At the same time, Putin also gave Russia’s central bank and major gas suppliers a week to implement the change. Specifically, Russia’s state gas company, Gazprom, was ordered to modify its contracts to accommodate the move to make payments in Russian currency.
This action demonstrates that Russia is trying to increase the value of the ruble by making it easy for gas buyers to pay back what they have lost. If Russia gets paid for gas in rubles, it will help them avoid financial sanctions. After the previous Russian invasion of Ukraine, the ruble plummeted by 85% against the dollar but is now only down about 25% after only a short time from the announcement of Russia.
The move to pay for gas in rubles is not the only action that Russia has asked Western countries to face restrictions caused by sanctions. Earlier, Russia made a significant bond payment in USD despite speculation that it could default or choose to pay in rubles.
Although the outcome of this action is unknown, governments in Europe believe that any change in the payment currency would be a breach of contract. Currently, members of the European Union are divided over whether to impose sanctions on Russia’s energy sector.
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