President Vladimir Putin said on Wednesday Russia would only accept payments in rubles for gas shipments to “unfriendly countries”, which include all EU members, after Moscow was hit by unprecedented sanctions on Ukraine.
Immediately after its announcement, the ruble – which has plummeted since the beginning of the Ukrainian conflict – strengthened against the dollar and euro, while gas prices rose.
“I have decided to implement a set of measures to transfer payments for our gas supplies to countries that are not friendly to the Russian ruble,” Putin said during a televised government meeting.
He added, however, that Russia will continue to supply the amount of gas outlined in its contract.
Putin instructed Russia’s central bank to implement a new payment system within a week, saying it must be “transparent” and would involve the purchase of rubles in the Russian domestic market.
Putin also hinted that other Russian exports might be affected.
Then Wednesday Russian space agency Roscosmos announced it would also urge its international partners to pay it in rubles.
“We will also conclude all our external agreements in rubles,” Roscosmos head Dmitry Rogozin was quoted as saying by the official Tass news agency.
“It is clear that sending our goods to the European Union, the United States and receiving dollars, euros, other currencies no longer makes sense to us,” Putin said.
Ukraine quickly denounced Russia’s “economic war” against the EU and its efforts to “strengthen the ruble”.
“But the West could attack Russia with an oil embargo that would cause the Russian economy to collapse,” Ukrainian presidential adviser Andriy Yermak told the Telegram.
“This is now a major economic battle, and the West must collectively win it,” he added.
German Economy Minister Robert Habeck, whose country imported 55 percent of its natural gas from Russia before the conflict, said Putin’s request was a breach of contract and Berlin would discuss with European partners “how we would react to the matter”.
Austrian energy company OMV said on Wednesday that it would still continue to pay for Russian gas in euros despite the announcement.
“We don’t have any other basis for the contract. I wouldn’t be able to do otherwise,” OMV CEO Alfred Stern told Austrian television.
Western countries have heaped crippling sanctions on Moscow since it transferred troops to Ukraine.
The West froze about $ 300 billion of Russia’s foreign currency reserves abroad, an action that Foreign Minister Sergei Lavrov on Wednesday described as “theft”.
But while the United States has banned Russian oil and gas imports, the EU-which receives about 40 percent of its gas supplies from Russia by 2021-has maintained shipments from Moscow.
Brussels, however, has set a target to reduce Russian gas imports by two -thirds by the end of the year and is eyeing oil sanctions.
“Russia is now trying to pressure the West with counter -sanctions – and reduce its reliance on foreign currencies,” Swissquote senior analyst Ipek Ozkardeskaya told AFP.
Russia has been moving to “lower the dollar” of the economy for years, since the introduction of Western sanctions on Crimea’s annexation from Ukraine in 2014.
In March 2019, Russian state energy giant Gazprom announced its first gas sale for a ruble to an unnamed western European company.
Deputy Prime Minister Alexander Novak said today the transition to trading in the national currency will “improve reliability”.
He warned that full sanctions on Russia’s oil and gas would lead to the “collapse” of the global energy market and an “unpredictable” price spike.
Analyst Timothy Ash of BlueBay Asset Management said, however, “it’s hard to see Putin’s move as a positive ruble”.
Ash said Putin was essentially trying to force Western countries to trade with Russia’s central bank, which they have blocked.
“It will only accelerate the diversification of Russian energy,” he added.
According to investment group Locko Invest, countries declared “unfriendly” by Russia account for more than 70 percent of Russia’s energy exports in terms of revenue.
The group also stressed the danger for Gazprom running out of foreign currency to pay off its debts in the future.
But Andrew Weiss of the Carnegie Foundation said: “Putin certainly knows how to build and exploit leverage”.
“Putin routinely uses escalation in such situations to elevate his opponents’ best plans. There is no reason to doubt that that has changed,” Weiss said on Twitter.
(This story has not been edited by NDTV staff and is automatically generated from a syndicated feed.)