Europe’s already high gas prices have gyrated since Russian President Vladimir Putin announced plans to have importers pay for Russian natural gas in rubles instead of dollars and euros. Here’s a look at some of the implications of such a move: WHAT IS PUTIN PROPOSING? Europe imports large amounts of Russian natural gas to heat homes, generate electricity and fuel industry, and those imports have continued despite the war in Ukraine. Around 60% of imports are paid in euros, and the rest in dollars. Putin wants to change that by requiring foreign gas importers to purchase rubles and use them to pay state-owned supplier Gazprom. Putin told the Russian central bank last Wednesday to come up with a workable system. WHAT EFFECTS COULD THAT PLAN HAVE? Importers would have to find a bank that would exchange euros and dollars for rubles. That could be cumbersome because some Russian banks have been either blocked or cut off from the SWIFT messaging system that facilitates international payments. Still, there are some banks that haven’t been cut off, and for now, sanctions imposed by the U.S. Treasury barring bank transactions contain exceptions for energy payments. That’s a concession to European allies that are much more reliant on Russian oil and gas and fear a total cutoff could throw their economy into recession. Russia getting paid for gas in their currency would at best help marginally in getting around financial sanctions, propping up the ruble’s value or protecting the Russian economy, said Eswar Prasad, professor of trade policy at Cornell University and a former official at the International Monetary Fund. “Either Putin is getting terrible economic advice or he is going further off the rails in his hatred for the West,” Prasad said. “It would be cheaper for foreign importers to pay for Russia’s exports in a currency that is collapsing in value, but it is difficult to acquire rubles and make payments in a manner that avoids the sanctions.” He warned that the move “could further roil global energy markets by exacerbating current supply disruptions and adding to uncertainty about future supplies, which could all add up to more price spikes.” HOW IS PUTIN’S DEMAND BEING RECEIVED IN EUROPE? European governments and energy companies are rejecting the idea, saying gas import contracts specify the currency and that one side can’t change it overnight. They say they intend to keep paying in euros and dollars. More broadly, the Group of Seven major economies including Japan, the U.S. and Canada as well as Germany, France, Italy and Britain have agreed to reject Moscow’s demand. The European Union’s energy commissioner also agreed, a G-7 statement said. German Vice Chancellor Robert Habeck told reporters Monday that “all G-7 ministers agreed completely” that such a step would be “a one-sided and clear breach of the existing contracts.” WHAT’S PUTIN’S MOTIVE? In theory, requiring ruble payments could support demand for the currency and its exchange rate. But not by much, Prasad says. As it stands, euros and dollars are already being used to purchase rubles when Gazprom exchanges its foreign earnings. The Center for Eastern Studies in Warsaw has suggested that by moving the flow of foreign currency from Gazprom to the largely state-controlled banking system, the Kremlin will gain added control over foreign currency that has become scarcer […]

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