Putin demands 'unfriendly countries' pay for gas in rubles. Will the EU comply?

Alexei Nikolsky, Sputnik, Kremlin Pool Photo via AP

The Russian economy is struggling thanks to unprecedented western sanctions. The value of the ruble has been down below a penny for the past few weeks as investors and regular Russians are doing their best to avoid it. Remember those long lines to take out dollars and euros at Russian ATMs?

Russia has done its best to stabilize the ruble by raising interest rates, but with the central bank cut off from accessing about half of its reserves held in foreign banks (in the US, Europe and Japan), it’s mostly been a losing battle. Today however, Putin has announced a new strategy which, if it works, would shore up the ruble and create a divide among his western enemies.

“I have made a decision to implement in the shortest possible time a set of measures to switch payments for … our natural gas supplied to the so-called unfriendly countries to Russian rubles,” Mr. Putin said on Wednesday…

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said the action means that every time a Western country buys a barrel of oil it would be “propping up his domestic currency.”

Here’s video of Putin’s announcement:

Putin’s strategy had an immediate impact with the ruble improving to 95 to the dollar.

Gas prices in Europe also shot up:

Just as importantly, Putin’s announcement creates a potential split between the US and UK, who have already stopped buying Russian oil and gas, and the EU which can’t afford to do so because it makes up about 40% of their energy supply. Andrew Weiss, who does Russia related research for the Carnegie Endowment for International Peace, posted a thread about Putin’s move to damage western unity.

Germany has been wobbly on confronting Russia from the start and now the Chancellor is signaling weakness to exactly this kind of Russian arm twisting.

I don’t want to oversimplify what he’s saying but Putin may have decided he can stalemate the economic battle with the west even if he’s losing the actual battle in Ukraine. Or if he can’t quite stalemate it, at least he endure more pain than the west will be willing to endure. And he could be right about that. In the west, ordinary people will complain about high gas prices and in Europe cutting of Russian gas would indeed mean significant economic pain for Germany, all of which will be transmitted back to elected leaders.

But Putin has set himself up as President for life. He can ignore all of the messages already coming from Ukraine, and from the oligarchs whose superyachts have been seized, and from regular Russians who oppose the war and who will suffer most because of the sanctions. Putin’s position isn’t based on winning the war or keeping his cronies happy and certainly not on the support of the Russian people. Until we reach the point where a coup is possible, Putin can do whatever he wants.

And while all of this is happening, Xi Jinping is sitting on the sidelines taking notes. If Putin demonstrates that economic dependency is enough to get the west to back down and let him get away with an invasion, that lesson won’t be lost on the PRC.

Another German politician tweeted that Germany and the EU needed to immediately unify and refuse to bow to Putin. I hope the EU is listening.