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Russia’s Grand Plan To Undermine The U.S. Dollar

·3 min read

Vladimir Putin’s insistence that “unfriendly” nations pay in rubles for natural gas is just the beginning of a Russian export policy that will see fewer U.S. dollars being used in transactions for goods, especially for energy, according to the Kremlin.

Russia has set a March 31 deadline for the countries it considers “hostile” - including the United States, all EU member states, Switzerland, Canada, Norway, South Korea, Japan, and many others - to start paying in rubles for natural gas.

Still, Europe continued to receive Russian natural gas via pipelines on Friday, even after Putin threatened European countries that Moscow would cut off gas flows unless buyers complied with Russia’s gas-for-rubles-only demand.

Throughout last week, the Kremlin issued unclear - and at times, contradictory - messages, while European economies started to activate emergency plans in anticipation of a potential disruption to gas supply from Russia. Germany and Italy - major European economies and major importers of Russian gas - said last week that they had received assurances from Russia that they could continue paying in euros for the gas coming from Russia. 

Russia did not immediately cut off the gas supply to Europe partly because it is dependent on revenues from gas and partly because payments for gas delivered after April 1 are not due until later this month or early May.

The continued gas supply to Europe eased concerns that Europe would find itself cut off from Russian gas, but those concerns could intensify again later this month and in May when payments to Moscow are due.

The Kremlin, for its part, signals the gas-for-rubles demand is just the beginning of a switch to the Russian currency for Russian exports.

“It is the prototype of the system,” Kremlin spokesman Dmitry Peskov said over the weekend on Russian state television, referring to the gas-for-rubles scheme.

“I have no doubt that it will be extended to new groups of goods,” Reuters quoted Peskov as saying. The Kremlin spokesman did not provide any timeline for extending the rubles payments to exports of other goods.

Last week, the Kremlin signaled that it could work on an idea to price all energy and commodity exports of Russia in rubles.

This weekend, Peskov said Moscow was seeking a new global system that would not have the U.S. dollar as the dominant currency.

“It is obvious that - even if this is currently a distant prospect - that we will come to some new system - different from the Bretton Woods system,” Peskov said.

Russia’s demand for rubles for gas goes beyond economics, analysts told CBC News and The Associated Press.

By demanding rubles for natural gas, Russia wants to score “a kind of political victory,” Stefan Meister, head of the program on international order and democracy at the German Council on Foreign Relations, told The Associated Press.

“It wants to show that Putin dictates the conditions under which it exports gas,” Meister told AP.

Payments in rubles could also send a message in Russia that the ruble is strong and Putin’s war in Ukraine is going according to plan, analysts also said.

However, from an economic standpoint, the ruble payment is strange, other analysts note.

“Under normal circumstances, a country that is trying to prop up its currency and maintain imports from abroad would seek payments in hard currencies such as dollars and euros rather than its own currency,” Eswar Prasad, the Tolani Senior Professor of Trade Policy and professor of economics at Cornell University, told CBC News.

It is possible that Russia could be using the demand for payments in ruble as a way to skirt Western sanctions, Prasad and other experts say.

By Tsvetana Paraskova for Oilprice.com

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