Yesterday, Vladimir Putin announced that "unfriendly" countries would need to pay for Russian gas in Rubles in the near future. The news came with speculation that this is a move to prop up the falling value of the Ruble, that affected countries would have a hard time coming up with a source of Rubles, and that this might constitute breach of contract (as gas contracts specify, among other things, means of payment and cannot be changed unilaterally on short notice).

But even if he gets his way, how does that actually benefit Russia? Major Russian banks (Sberbank, Gazprombank) that deal with gas payments were famously not banned from Swift and thus can still deal with foreign currency, so

  • now: Major Russian banks receive foreign currency and can do whatever they want with it (like propping up the Ruble)
  • then: Major gas customers would have to buy Rubles (best source would be Russia's central bank, but this one is sanctioned), propping up the Ruble's value, then send the Rubles to major (non-sanctioned) Russian banks.

Seems like a wash to me?! Is this about proving a point like "oh, you want Rubles from our central bank? How are those sanctions working out for you?" Is it about price increases through the back door by setting a price in Rubles? (But then the headlines should be about price increases, not Rubles itself, and besides that would only seem to work if one expects the value of the Ruble to rise.)


4 Answers 4


It benefits Russia by forcing gas customers to purchase rubles at unfavourable rates, rather than Russian gas suppliers. At the moment, since President Putin enacted a decree obligating exporters to sell 80% of foreign currency received from foreign trade contracts, Russian exporters are effectively propping up the exchange rate of the ruble.

Putin's announcement is very clear that the only part of the contracts that Russia is seeking to change is the currency, not the gas price. However, once this change is enacted, the only sufficient source of rubles is likely to be the Russian central bank - currently sanctioned. Customers could try to buy rubles on the open market, but the sums are such that this may prove infeasible. If sanctions on the central bank are lifted in order for customers to obtain sufficient supplies of rubles, this is a win in itself; however, the central bank could then subsequently introduce fixed exchange rates, forcing gas importers to pay over the odds for rubles - increasing the price of the contracts by the back door, putting pressure on the 'unfriendly' countries and propping up the ruble further.

It seems like Germany is calling the demand a 'breach of contract', while the Italian Prime Minister's economic adviser has said that the country intends to 'keep paying in euros', so we'll have to see if this change actually materialises.

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    Breach of contract means nothing if nobody can enforce any response. What are they going to do, sanction the Russian central bank again? Prediction: Germany very suddenly finds that the pipeline is full of compressed air instead of natural gas. Commented Mar 24, 2022 at 14:13
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    @user253751: Russia needs to sell the gas more than Germany needs to buy it. Which is why Russia is playing these kind of games rather than actually applying sanctions. Commented Mar 24, 2022 at 17:09
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    @JackAidley On the contrary, it seems Germany needs the gas very much, which is why Germany is playing these kind of games rather than actually applying sanctions. Commented Mar 24, 2022 at 22:59
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    Germany does need russian gas but not as severly as it is sometimes made out. Germanys gas storage currently holds about 70 Twh in energy. In Q2 Germany generally uses about 170 Twh of gas but only about 55% of gas is imported from russia, meaning that at current capacity germany could continue living like we are at the moment for close to 3 months, before any significant change occurs. While that is not particularly long, its longer than I think most people expect
    – SirHawrk
    Commented Mar 25, 2022 at 6:37
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    @SirHawrk: 3 months, and then what? It takes decades to decrease dependence on fossil fuels, so "only" 55% of gas is nothing to sneeze at. Commented Mar 25, 2022 at 9:59

It flips the sanctions risk target

Currently, the money paid by western customers is in the matching western bank accounts of the (yet) unsanctioned Russian banks. That money can be unilaterally seized at any time, like what happened with the Russian central bank assets. Also, it is almost impossible to spend that money, because the central bank that would normally handle currency conversion is sanctioned, the export of physical western currency to Russia has been banned by western countries and e.g. Gazprom is not in the business of finding goods to import into Russia with those reserves and can't trade their dollars/euros to some Russian importers, because they are in a sanctioned bank. So currently, the money Russia "gets" for its oil and gas is almost entirely useless.

With this change, it becomes the buyer's headache. If you are a European country and want to buy Russian oil and gas, you have to figure out a way to get rubles. Whether it's by exporting actual goods to Russia, or some dodgy sanctions-skirting deal in Asia, it's your headache. If you can figure it out, great! If you can't, no gas for you and no change income-wise for Russia practically speaking.

This will most likely decrease the revenue that Russia gets (and the volume that it exports) by a lot, but it looks like the calculus is that getting even 30% of previous revenues is still better than the functionally almost 0% it gets now. Plus decreasing exports that much in this market is likely to spike prices drastically, so it will hurt their adversaries as a consolation prize.


This is more of a propaganda statement than a real intention.

This is not new, it is only the first occurrence when an official source (who could be more official source than V.V.Putin?) makes such a statement.

A slogan like this circulated for years in Russian propaganda outlets, together with another, the opposite one - to ask gold for the gas instead of EUR/USD.

Of course, neither is realistic.

  • The economy behind the Rouble is quite small and the Rouble is rather volatile. A falling Rouble (and we are yet to see the Rouble soaring) would mean Gazprom getting less and less value for their gas.

  • Or, Russia may impose an administratively-controlled rate for gas purchases - meaning they can impose a new price at every payment. They may as well just stop trying to sell.

  • The third probability is that they are really preparing the PR to stop selling gas. Sinking the economy may be a survival strategy for a dictator.

  • The fourth probability has some rational element - the Russian government may be playing with the idea of pegging the Rouble to some other currency (or a bag of currencies). This (if properly implemented, of course) may be an important stabilizing measure after the war stops. Looks too much long-term, right now.

Gold has its own problem - Russia is a gold exporter. It will have more gold to export.


The target auditory for these statements are:

  1. The ordinary Russians. Russian population has a decades-long tradition of very low economic literacy.

    While at least some part of these people gathered some empiric knowledge in microeconomics in the past 30 years, macroeconomics is still terra incognita (or, better yet, terror incognita) for the average Russian on the street. Marxism has its side effects.

    They are not expected to understand the grave implication of such an idea, they will just get the radicality of the message. Their country breaks the artificial limitations of these hated foreign currencies.

    (And those who do understand the implications don't listen too much to their government anyway.)

  2. Russian fans in EU (esp. the eastern part).

    Such people do exist and they are (as of late) a pretty vocal minority. Just like the ordinary Russians, they see the spirit of the message and not the content.

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    "The ordinary Russians. Russian population has decades-long tradition of very low economic literacy." Is there a country where the average population has a high level of economic literacy? How is this measured and what does it mean?
    – Jontia
    Commented Mar 25, 2022 at 8:33
  • The difference between Eastern europe and Western Europe / USA in this regard is impressive.
    – fraxinus
    Commented Mar 25, 2022 at 8:38
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    @fraxinus source?
    – CGCampbell
    Commented Mar 25, 2022 at 9:53
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    Damn, I live in a former USSR protectorate. The fact is so obvious that I am really lost at finding a "source". Three generations of people never heard about the connection between the supply, the demand and the price...
    – fraxinus
    Commented Mar 25, 2022 at 10:10
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    @SebastiaanvandenBroek maybe. But it will have pretty bad optics. It will be like "we want to do something, but we lack the stability to do it properly, so EUR again.
    – fraxinus
    Commented Mar 26, 2022 at 8:21
  • now: Major Russian banks receive foreign currency and can do whatever they want with it (like propping up the Ruble)
  • then: Major gas customers would have to buy Rubles (best source would be Russia's central bank, but this one is sanctioned), propping up the Ruble's value, then send the Rubles to major (non-sanctioned) Russian banks.

While the currency is stored in the same banks, in the former case those are the foreign currency deposits held by the gas-producing companies, whereas in the latter these are the state money, which the state can use for its needs.

Following the discussion in the comments, it seems that much confusion comes from thinking of Russia as a single person with a single bank account for all their needs. This is not correct, neither for Russia nor for any other country:

  • Gazprom is a company separate from the Russian government (even if the government holds more than 50% of its stocks). The funds that belong to Gazprom are not the government funds and it does make a difference, which of them holds the roubles and which holds the dollars/euros. Whether Gazprom can at will change its roubles to dollars/euros and back depends, of course, on whether the government is willing to do so. Controlling currency - including its amount and its exchange - is one of the important prerogatives/powers that any sovereign government possesses.
  • Even governments (and 100% government owned companies) do not hold all their funds in a single bank account. The government accounts usually have designated spending goals and sources of replenishment, which are regulated by the state law; although some governments may have more flexibility in shuffling money between different accounts. Inappropriate use of government accounts, e.g., directing pension funds tor earmament, is often a matter of public controversies, often associated with talk about funds misappropriation or misuse of taxpayer money.

As an example, one could use the Federal takover of Fannie Mae and Freddie Mac in the beginning of the Great Recession - both are government-sponsorod/public enterprises, i.e., pretty much in teh same situation as the Gazprom. Yet, they needed to be officially bailed out - the event which generated much discussions and controversies.

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    I'm kind of confused - why couldn't Russia make use of the dollars/euros they currently get for their gas to buy roubles if they want to? What does this actually change? Commented Mar 24, 2022 at 20:07
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    @JonathanReez because in one case you have dollars and in the other you end up with roubles, which I may not want to exchange for dollars.
    – Morisco
    Commented Mar 24, 2022 at 20:39
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    Ok... but what stops Gazprom from taking their dollars and exchanging them for roubles instead of asking the Polish or Italian government to do that first? Outside of some movements in exchange rates you still end up with the same outcome. I struggle to understand the practical difference. Why does it matter if Gazprom or the Italian Ministry of Finance sends in their dollars in exchange for roubles? Commented Mar 24, 2022 at 21:14
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    @RogerVadim You don't take into consideration that The company is majority-owned by the Russian government More than 50% of shares.
    – tenbits
    Commented Mar 24, 2022 at 22:47
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    @user253751 they will certainly be unable to keep these dollars/euros in foreign bank accounts, and the Russian government willc ertainly have little trouble accessing these currency reserves. Have you ever run a business, like a grocery shop? - you need to get deeply in debt before you sell even a single carrot (rent, equipment, stocks, storage), and then you may have money turnouver, but little profit (if any)... and you still have to pay salaries.
    – Morisco
    Commented Mar 25, 2022 at 13:57

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