Russian President Vladimir Putin announced on Wednesday that “unfriendly″ countries will now have to purchase natural gas exports using Russian rubles.
Putin said that sanctions and asset freezing have undermined trust in certain Western currencies.
During a meeting with Russian officials, Putin said that “a number of Western countries made illegitimate decisions on the so-called freezing of the Russian assets, effectively drawing a line over reliability of their currencies, undermining the trust for those currencies,” according to a report from the Associated Press.
“It makes no sense whatsoever,” Putin continued, “to supply our goods to the European Union, the United States and receive payment in dollars, euros and a number of other currencies.”
Putin, therefore, said that he was announcing measures to switch payments for “our natural gas, supplied to so-called unfriendly countries” to rubles.
The Russian president did not say when the new payment plan would go into effect but instructed the country’s central bank to work out the details.
The move may be an effort to support the ruble after its value plunged due to the sanctions.
The Associated Press report noted that “despite severe Western sanctions, natural gas flows are still heading from Russia to Europe. The European Union is reliant on Russia for 40% of the natural gas it needs to generate electricity, heat homes, and supply industry — a key reason why the EU has not applied its sanctions to Russia’s energy industry.”
Some analysts that the wire service spoke to doubted that the move will help boost the Russian currency in any meaningful way.
“Demanding payment in rubles is a curious and probably ultimately ineffective approach to attempting an end run around Western financial sanctions,” said Eswar Prasad, a professor of trade policy at Cornell University. “Rubles are certainly easier to come by now that the currency is collapsing. But exchanging other currencies for rubles will be quite difficult given the widespread financial sanctions imposed on Russia.
“The hope that demanding payment in rubles will increase demand for the currency and thereby prop up its value,” Prasad continued, “is also a false hope given all the downward pressures on the currency.”
Neil Shearing, group chief economist at Capital Economics, added, “It’s not an obvious move to me, since the (Russian) economy needs a supply of foreign currency in order to pay for imports — and energy is one of the few sources left.”