Russian leader Vladimir Putin announced on Wednesday that Russia would require countries deemed by the Kremlin to be “unfriendly” to pay for their oil and gas imports in rubles rather than Western currencies. The move has been characterized by Western economists as an attempt to artificially boost the exchange rate of the struggling Russian currency.
In a meeting with Russian lawmakers, Putin called the move a distrust of Western currencies. Stocks of dollars, euros and other Russian currencies abroad have been frozen in the West, preventing their use by the Kremlin. The Russian leader suggested that this problem could be circumvented by requiring the use of the ruble rather than the US dollar, the international standard.
“A number of Western countries have made [an] illegitimate decision on the so-called freezing of … Russian assets, effectively drawing a line on [the] reliability of their currencies, undermining trust in those currencies,” Putin told lawmakers.
“It makes no sense to supply our goods to the European Union [and] in the United States and receive payments in dollars, euros and a number of other currencies,” he added. It is unclear why Putin suggested that Russia would export to the United States, which has banned the import of Russian energy.
Putin did not say when the policy would take effect, but he asked Russia’s central bank to establish procedures for countries to buy rubles from Russia. In effect, requiring the purchase of Russian energy in rubles means that importers must exchange Western currencies for rubles at the Russian central bank and use the rubles to pay for energy, leaving essentially the same fundamental exchange, the currency Western against Russian oil, intact, but boosting demand for the ruble. However, since most of the “hostile” countries targeted by this restriction have sanctioned the Russian central bank, it is not clear how such an exchange could take place.
The value of the ruble has fallen precipitously since the start of Russia’s invasion of Ukraine on February 24. In the aftermath of the invasion, described by the Kremlin as a “special military operation”, heavy Western sanctions caused the ruble to fall by around half its value, taking its value from 75 to the dollar to around 150. The currency has since recovered some of its value, trading Wednesday at around 95 to the dollar.
Russian gas importers, including Germany, have accused the Russian government of violating pre-war contracts, which often stipulate that payments must be made at a set rate in a single currency. German Economy Minister Robert Habeck suggested the announcement was further proof that Russia could not be considered a stable trading partner, adding that Berlin would discuss the matter with other importers.
Russia supplies about 40% of Europe’s natural gas.
Trevor Filseth is a news and foreign affairs editor for the National interest.