The ruble is making a remarkable recovery. After the Russian invasion of Ukraine, the currency dropped by more than 40 percent as a result of Western sanctions, but it has rebounded strongly on the foreign exchange market. On Thursday, a euro cost 112 rubles; on March 7, it was 163 rubles. Before the invasion of Ukraine, one euro was still worth 93 rubles.
Russian President Vladimir Putin announced this week that he will oblige “unfriendly countries” – which includes all Western countries – “to pay their oil and gas bills in rubles.” Dollars and Euros are no longer accepted. That puts the countries that cannot do without Russian oil and gas at risk. Due to the sanctions, hardly any rubles are available on the international currency market.
Harald Benink, professor of Banking & Finance at Tilburg University, says that Putin is more or less forcing the West to undermine its own sanctions. ‘As there is hardly an international market for rubles anymore, buyers of Russian oil and gas have to knock on the door of the Russian central bank to be able to exchange euros for rubles. Actually they have to beg.’
Political purpose
According to Benink, Putin’s measure primarily serves a political purpose: it embarrasses Western countries. The fact that the price of the ruble could also rise as a result is perhaps a nice bonus for him, but it does not have many practical consequences. In practice, Russia cannot do much with the more expensive ruble. In the West, he can hardly buy anything anymore because of the trade boycott. And countries that have no or limited sanctions will undoubtedly want to be paid in hard dollars and euros.
Because all of Russia’s dollar and euro assets have been frozen abroad, Putin cannot access them. According to the president, dollars and euros are digging their own graves by freezing Russian assets; both coins have become unreliable as a result. And he gives that as a reason for wanting to be paid in rubles.
Roscosmos
The Russian state space company Roskosmos has now also said it will invoice in rubles. Dmitry Rogozin, the boss of the company, says that payments in Russian currency are required for all international services. “It is clear that payments in dollars, euros and other currencies are of no use to us,” he told Tass news agency. Roskosmos is a partner in the International Space Station and also sells paid trips to space tourists from around the world.
In recent times, the Russian government and central bank have made every effort to stabilize the ruble’s value and prevent a further fall. For example, the interest on ruble deposits in Russia has doubled to 20 percent. This should deprive Russian citizens and businesses of the temptation to panic and withdraw their money from the bank, as happened in the first days after the invasion of Ukraine. That bank run has now stopped.
Putin said he will honor the contracts to supply oil and gas to the West, but the payment system will change. He said on television that he had ordered the Russian central bank to adjust the payment system within a week.
‘Breach of contract’
For the time being, the countries that import gas and oil from Russia do not seem to want to comply. German Economy Minister Robert Habeck called Putin’s mission a “breach of contract” and said he wanted to talk about it with other European countries. Germany gets 55 percent of its gas from Russia. The Austrian energy company OMV said it would continue to pay in euros. “We don’t know how to get rubles.”
Putin is trying in all sorts of ways to normalize financial flows in his country so heavily affected by the sanctions. The Russian stock exchange also reopened on Thursday, which had been closed since the start of the war due to the enormous price drop. There were wild price movements in the 33 funds that had reopened to trading; these include companies such as Gazprom and Sberbank. Initially, the value of the shares rose by more than 10 percent. Later on, the price gain dropped to an average of 5 percent. Foreign investors are not allowed to trade yet; they are only welcome again from 1 April. Short transactions, the sale of shares in the future in the hope of a fall in price, are also prohibited for the time being.