Putin-Scholz Phone Call on “Gas for Roubles” Mechanism Conforms to Our Assessment; Disputes Over Russia Force Reduction Around Kiev; West Pressure on China, India Continues

The Western press is widely describing Putin clarifying to German Chancellor Scholz how Germany could pay for gas in roubles as a climbdown. Since the Russian mechanism, of foreign gas buyers making their usual payments in the contracted currency, to an unsanctioned Russian bank, is the one we described as most likely and most consistent with Putin’s original announcement, it’s hard to see it as a retreat. And as we’ll describe, Russia accomplished several things with its move, starting with rattling Scholz enough to force him to speak to Putin.

By contrast, as we’ll explain soon, in the “No polite but largely empty gesture goes unpunished” category, a Russian free non-concession about making a substantial cut in military activity around Kiev is being spun as a Russian falsehood, despite the Guardian reporting that multiple sources, both US and UK, did note some reduction in Russian action. As we’ll explain, it’s not clear if Russia was being too clever by half, or whether this is yet another example of the US and Ukraine winning the PR war irrespective of facts on the ground, or both.

Back to the gas for roubles gambit. Let’s again see what Putin said”

And as we stated in our post on this story when it broke:

As we’ll explain, this counter-sanction does not amount to forcing (much) more demand for roubles (unless Russia sets an above-market rouble price for these gas buys). Russia has already imposed currency controls, including requiring major exporters to sell 80% of their foreign currency receipts and buy roubles. And contrary to popular mis-perceptions, the rouble is not collapsing….

Let us consider how Europe is buying gas from Russia now:

EU buyer pays Euros, to say Gazprom via one of Gazprom’s banks.

Either that bank is one of the non-sanctioned Russian banks, or Gazprom transfers the funds from a Eurobank to a non-sanctioned Russian bank to convert enough of the Euros to roubles to satisfy Russian requirements. Note that there are not enough roubles circulating outside Russia for it to be very likely that a garden-variety European bank could acquire enough roubles to pay Gazprom.2

So what is different now?

The EU buyer is now required to deliver roubles, not Euros, to Gazprom at an unblocked account or an unsanctioned bank. Since there is very little in the way of roubles outside Russia, the buyer will now need to open and maintain rouble accounts in a Russian bank. That means Russia controls whether or not the account is blocked on its side.

To put it more bluntly: To sell Euros, the EU needs to keep the Russian banks sanction-free, otherwise it can’t trade Euros for roubles to procure gas.

I didn’t say so explicitly but thought at the time that the press and political reaction was way overdone.

Mind you, this was the ONLY way Putin’s demand could be implemented without running afoul of the other boundary conditions he set forth, which was not to change volumes or pricing principles, which would also imply not changing the length of the contract (volumes and any long-term pricing depend on the contract term).

I am not sure how exact the captioned translation in the video is, but one could conceivably have seen the “We will start transferring payments for our natural gas supplies…to Russian roubles” as implying Russian entities would make the foreign exchange buy, which in turn implies the official payment to satisfy the contract would have to be made to a Russian financial institution.

Now has anything changed from that picture? Contrast that with the report in DW, Germany says Putin agreed to keep payments for gas in euros:

Germany’s government said on Wednesday it has received assurances from Russia that Europe would not have to pay for Russian gas supplies in rubles,

Olaf Scholz’s office said Russian President Vladimir Putin told the German Chancellor that European companies could continue paying in euros or dollars.

In a phone call with Scholz, Putin said the money would be paid into Gazprom Bank and then transferred in rubles to Russia, a German statement said. The bank is not currently subject to sanctions.

“Scholz did not agree to this procedure in the conversation, but asked for written information to better understand the procedure,” the statement added.

Putin said last week that Moscow would only accept rubles as payment for gas deliveries to “unfriendly” countries, including European Union nations.

Unfortunately, I had no luck in finding the readout on the German government website or the Chancellor’s subsite. This is the Russian readout:

Telephone conversation with Federal Chancellor of Germany Olaf Scholz

Vladimir Putin had a telephone conversation with Federal Chancellor of the Federal Republic of Germany Olaf Scholz.

March 30, 2022


Vladimir Putin informed the Federal Chancellor about the substance of the decision to switch to Russian rubles in gas transactions, for Germany in particular. The change in transaction currency is being introduced due to the fact that, in violation of international law, the foreign exchange reserves of the Bank of Russia were frozen by the EU member states. It was noted that the decision should not lead to a deterioration of contractual obligations for the European companies importing Russian gas. It was agreed that the experts of the two countries would discuss this issue further.

Vladimir Putin and Olaf Scholz exchanged views on the latest round of talks between Russian and Ukrainian representatives in Istanbul held the day before. Ensuring the safe evacuation of civilians from combat zones, primarily from Mariupol, was also considered.

So Russia does not see this as a retreat, even though the West is braying that it is, despite this minimalist-seeming change as clearly the most probable and intended outcome.

Russia is not going to relent on having the gas payment made directly to a Russian bank, say as opposed to a Gazprom account at Deutschebank (a company of the scale of Gazprom will have accounts at non-Russian banks). So it appears that the only possible bone of contention (unless Germany and other EU nations are determined to engage in self-harm to hurt Russia too) is whether the European gas buyers have to instruct Gazprom to convert their payments to roubles, or whether they are told Gazprom will do that automagically.

And even though Germany is acting like it hasn’t agreed, one can’t see how it can’t. The domestic backlash would be considerable. Why should Germany industry and consumers suffer for what most German citizens would regard as an unimportant, at most technical, change, particularly since the media is depicting Russia as having capitulated?

So what did Russia accomplish?

First, they derailed the big series of US-Europe summits last week. Recall the US and even the Japanese press was preparing the public for a new round of economic sanctions, and maybe also some action on the military front. Instead the meetings delivered only a damp squib. For instance, the sanctions announced were either reruns (measures previously announced but not yet implemented) or small beer new ones, like sanctions of individuals.

Second, they reminded the West that its depends on Russian energy and has no alternatives in anything less than the intermediate term, short of serious deprivation.

Third, not certain but highly likely, by presumably getting gas buyers to make gas payments to accounts at unsanctioned Russian banks (here Gazprom’s bank), Russia hopes to have forestalled any further sanctions on Russian financial institutions. Or put it another way, if the West sooner or later tries to go there, Russia has laid the groundwork for denying Russian commodities to Western buyers.

Fourth, Russia primed the West to accept this payment process for other Russian goods. From Reuters yesterday:

Russia will not immediately demand that buyers pay for its gas exports in roubles, the Kremlin said on Wednesday, promising a gradual shift and saying Russia should work on an idea to widen the list of its exports requiring rouble payment….

Earlier on Wednesday, Russia’s top lawmaker Vyacheslav Volodin said the European Union would have to pay in roubles if it wanted Russian gas and said oil, grain, metals, fertiliser, coal and timber exports could be priced the same way.

Fifth, as an unexpected bonus, Putin and Scholz had a direct conversation. When two national leaders are seriously at odds, any interaction that is less than testy is a minor de-escalation.

I have to confess I still managed to get spun by the Western press. Putin in his March 23 statement said that he wanted his experts to come back within a week with their recommendations. My dim recollection (due to the state of search it is pretty much impossible to make fine-grained queries) is that the 31st was the intended date for Gazprom to explain what the new drill would be. Gazprom either missed that deadline or the Putin-Scholz talk was intended to stand in its place.

The reason that that matters is it appears a lot of parties who ought to know better acted as if the (planned) March 31 announcement was the effective date for the process change. In fact it does take a bit of time to set up new payment processes, which is what Russia had in mind.

If the gas for roubles gambit is going well for Russia, with Russia on the way to getting what it wanted while allowing the West to claim a victory of sorts, a no-concession by Russia at the close of the Istanbul negotiations with Ukraine has turned into a backfire.

I have yet to find a translation of the remarks at the close of the sessions on Tuesday. The Financial Times recap is representative:

Russia has decided to “dramatically” scale back its military activities in the Kyiv area, a top Moscow defence ministry official said…

Alexander Fomin, Russia’s deputy defence minister, said the move was intended to “increase mutual trust” as he announced it in Turkey after face-to-face talks concluded on Tuesday.

Other accounts used the word “significantly” or “substantially”. Regardless, this concession wasn’t meaningful. The Russian Ministry of Defense stated earlier this week that it had successfully concluded the first phase of its operations among other things by taking Mariupol. The Ukrainian forces in the east have substantially reduced warmaking capabilities due to depletion of supplies, destruction of fuel and ammunition depots, and Russia succeeding in preventing resupply. The two reasons for having a big military presence around Kiev was to pin Ukraine’s western forces there and to pressure the government to negotiate.

So it was reasonable to assume that Russia was going to reduce force levels in the west so it could sent some to the east, both to relieve units that has been engaged in serious fights (the activity in the West was a lot less taxing) and to assist in capturing the largely-surrounded Ukrainian troops there.

But the use of a word like “dramatic” plus the failure to indicate timing let the US and Ukraine take control of the spin. The US, even before Russia had done anything, was pooh-poohing the Russian move. Again from the Financial Times:

But western officials cautioned against taking Moscow’s pledge at face value. “Nothing we have seen so far suggests that Putin and his colleagues are particularly serious about the talks. They are likely just playing for time,” said one.

On Tuesday US President Joe Biden said he wouldn’t “read anything into” Russia’s decision.

In fact, the Guardian reported the next day:

In Ukraine’s latest intelligence report as of 10pm local time, its military claimed Russian troops continue to withdraw from Kyiv and Chernihiv but the movement is merely “a rotation of individual units” and aims to “mislead the military leadership” of Ukraine…

Moscow’s lead negotiator, Vladimir Medinsky, said Russia’s promise to “drastically reduce” military operations does not represent a ceasefire. In an interview with the Russian state-owned Tass news agency, Medinsky said there is still “a long way to go” to reach a mutual agreement with Ukraine.

Following Russia’s announcement, two senior US officials said the US was seeing Russia beginning to withdraw some of its forces from the Ukrainian capital, Kyiv, in what it believes is a “major” change in Russian strategy. Another US official said any movement of Russian forces from around Kyiv would constitute a “redeployment, not a withdrawal”.

The UK has also seen signs of “some reduction” in Russian bombardment around Kyiv, Downing Street said. But it insisted the UK will judge tentative steps towards a possible peace deal by actions rather than words. “We don’t want to see anything less than a complete withdrawal of Russian forces from Ukrainian territory,” the PM’s spokesperson said. The UK’s Ministry of Defence (MoD) said in its latest updated that “it is almost certain that the Russian offensive has failed in its objective to encircle Kyiv”.

But accounts even from Russian-friendly commentators confirm that Russia is still shelling all over Ukraine. Even if Russia claims and actually is targeting only military targets, bombings rattle civilians who still can wind up as casualties. And the shelling in the Kiev area might serve to continue the pinning operation even as Russia is lightening up its troop deployment there.

So we see on the Republic TV Arnab debate show, a Ukrainian lawmaker hyperventilating about continuing Russian attacks. Even though Russia never committed itself to stop operations, it sure created the impression it would let up near Kiev. If Russia actually still will ease up, not giving an idea of timing was a huge own goal.

Even though the Ukrainain legislator is working from anecdata, he may well be correct that nothing much changed in one day. And even if Russia really, truly, cross my heart is on its way to lowering troop counts and activity around Kiev, one day is too little time to conclude much of anything. But Russia allowed others to define expectations.

Today, the New York Times is claiming Russia increased activity around Kiev and that Russian troops are defying Putin, in Russia Steps Up Attacks Amid Reports of Rifts in Moscow. From its summary:

Despite claims of de-escalation, Russian forces turned their fury on Chernihiv and the suburbs of Kyiv. U.S. officials say they believe Vladimir Putin’s aides are misleading him about the war.

While anything is possible, the Russian order of battle is not to take cities but to take armies and destroy military infrastructure and resources. The Wall Street Journal has a more plausible account in Russia Plays Down Progress in Peace Talks, Intensifies Attacks in Eastern Ukraine:

Moscow dismissed a diplomatic overture by Ukraine in peace talks, while Russian forces hit targets around Kyiv on Wednesday despite saying they would limit attacks there as they stepped up ground and air assaults in eastern portions of the country.

Kremlin spokesman Dmitry Peskov said talks Tuesday in Turkey between Ukrainian and Russian delegates didn’t represent a turning point in the conflict. “No one said that the sides have made headway,” he said. “We can’t point to anything particularly promising.”…

The Kremlin’s previously announced military strategy shift, Western officials have said, suggests a greater focus on securing and expanding one of its strongholds inside Ukraine, potentially as a bargaining chip in peace talks.

While Russian attacks appeared focused on areas away from the capital on Wednesday, most Russian forces around Kyiv haven’t been redeployed elsewhere, according to a Pentagon assessment.

“The airstrikes have not stopped. Not at all. So Kyiv is very much under threat,” said Pentagon spokesman John Kirby.

Ukraine’s military, while saying it saw signs that Russian forces were regrouping to focus on the east, also expressed doubt that Moscow had given up its efforts to take Kyiv.

Finally, the US is still trying to pressure China and India to take a stand against Russia. China does not seem receptive. From Global Times:

President Xi will meet EU leaders by video link on Friday, including European Council President Charles Michel and European Commission President Ursula von der Leyen….

The EU said it wants to put pressure on China “to be neutral with its stance” over Russia’s recent military operation in Ukraine, CNBC reported on Wednesday, citing unnamed sources. The goal of the summit is “ensuring, in a way, the neutrality of China so they don’t help Russia,” an EU official was quoted in the media report.

And another official also described the summit as a defining moment for EU-China relations and if China “aligns themselves with Russia that will obviously have a very negative impact on relations with the EU,” the official said, according to CNBC.

Chinese experts believe that it’s inappropriate to connect the Russia-Europe conflict with China-EU relations as the issue is not the problem that must be solved and tackled within the framework of China-EU relations but can only be considered as one factor affecting the relations.

The Indian government is set to be swarmed with foreign diplomats competing for its favor. Russian Foreign Minister is set for a two day visit starting Friday. But America’s Deputy National Security Advisor for International Economics Daleep Singh was set to be in New Delhi on Wednesday and Thursday. And according to Scroll, UK Foreign Secretary Liz Truss is arriving Thursday.

While it’s possible that India will relent, it didn’t budge when Japan offered $42 billion of investment in what was widely seen as an incentive to criticize the Russian campaign. And it also appears the West has managed to overlook was a massive snub the AUKUS deal was to India. India’s Foreign Minister gave an unusually harsh statement that boiled down to, “We need to rethink who are friends are.”

So many stresses are being applied to economic and political structures. Those of us who are at a bit of a remove from the immediate effects should consider ourselves to be very lucky.

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  1. tom67

    This is again a masterful recap. I learned more about the Gas- Ruble issue here than anywhere else.

  2. atharvaveda

    As long as the EU makes Russia accept euros, nevermind that these can be “converted” into rubles later, there is no material change. Russia can create rubles at will through its own central bank. No Russian entity needs any euros to acquire rubles. A conversion to rubles is meaningless unless it’s just a mechanism that manages to clear the euros, which are “inside money” in Poszar’s parlance and so can always be frozen, from the asset side of Russia’s (taken as a whole) balance sheet and in their place add real goods and services, which the EU cannot seize.

    In other words, getting rid of the euros it gets paid – converting them into real goods and services – is the real issue, and the EU has so far made no actual concession at all on that point. It is still in effect insisting that Russia should keep delivering the gas which Europe desperately needs, for nothing at all in exchange.

    As I said in a different comment, it unfortunately looks like (with emphasis on “looks like”) Putin was played in his conversation with Scholz.

    1. Samuel Conner

      > A conversion to rubles is meaningless unless it’s just a mechanism that manages to clear the euros, which are “inside money” in Poszar’s parlance and so can always be frozen,

      The point, as I understand it, is to establish that certain Russian financial institutions are conceded by Europe to be immune to sanctions. Their Euro accounts at the ECB will not be frozen — if these accounts are frozen, the R institutions will stop trading Rubles for Euros, the R gas providers won’t be paid, and Europe won’t get its contracted gas deliveries.

      1. deplorado

        Which brings the question, why is it so important to Russia to keep euro accounts at Euro institutions open — if Russia would not be allowed to buy anything with those euros?

        This updated interpretation (that asking for payment in rubles is just a technique to keep Russian euro accounts open) is far less sweeping than forcing buyers of Russian gas to scrounge for rubles around the world, thereby buoying the ruble (ultimately allowing RCB to set the exchange rate) and allowing more rubles to circulate around the world – thereby creating a “resource ruble” akin to the “petrodollar”.

        So then Putin’s gambit is not the dollar-hegemony-shattering move that some got excited about — it is not a roar but a whimper?? The more I understand about it, the more it seem so.

        1. Yves Smith Post author

          You don’t understand the sanctions. Russia is not “not allowed” to buy from Europe. Many European businesses did shut operations in Russia, and they would have been using euros to pay for the goods shipped in to their Russian units. It’s been de facto restricted a ton but certainly not barred. And those gas companies have workers in Europe….Gazprom had an office in Germany that was raided, remember? They get paid in euros, the rents get paid in euros..

          1. deplorado

            Thanks, I see… so maybe this is about seeking a balance somewhere between buoying the ruble (has to be good for ordinary Russians), and preserving the Russian business and state ability to earn euros for ongoing expenses and imports.

            This will probably take time before we can discern the direction it is going. Historic stuff.

            1. Polar Socialist

              Natylie Baldwin has an interesting collection of articles about Russia attempting a temporary gold standard (by Central Bank fixing the price of gold in rubles) and Russia only accepting gold or national currencies, but not dollars for any exchange (Zavalny heads the Energy Committee in State Duma).

              Way above my understanding if these are as significant as they seem.

    2. Sibiryak

      How could Putin have been “played” if it was Putin himself that proposed the scheme described above, not the other way around as you suggested in your other comment?

    3. Yves Smith Post author

      It is painfully obvious that you did not read this post because you evidence zero understanding of the issues at play, which were set out in detail. Our site Policies, which you also apparently did not read, make clear that:

      1. Commenting is a privilege, not a right

      2. Reading a post in full is required before commenting.

      I trust you will find your happiness elsewhere on the Internet.

    4. Harry

      Isn’t this about what currency you are invoiced in? You can always go to a bank to buy any currency you need. But ultimately you have to deliver Roubles and its down to you to do so. Which means you will need to deal with a Russian entity at some point. This puts the transaction risk and financial risks on the Germans. They wont like it.

      The fun observation about Putin-Scholz conversations is that Scholz is clearly not a finance specialist and Putin is clearly very fluent in German. Putin will have been briefed on the rouble scheme and Scholz wont have understood how it interacts with US inspired sanctions. Shame on me but I find it quite amusing imagining Scholz discomfort.

      1. timbers

        Yah Scholtz probably had to actually work and think and exert mental effort and make like decisions and ichy hard stuff like. All the while wondering when he can back routine of just taking orders from USA.

      2. XXYY

        Putin is clearly very fluent in German

        I understand he’s also very fluent in English, though he seems to be at great pains not to flaunt this fact. I personally have never seen any recording where he speaks English.

        1. Yves Smith Post author

          It takes a ton of self-discipline to attain fluency and then not use it. But Putin would be dealing in settings where he and his counterparties would have simultaneous translation, and translators at that level are few indeed. Where is it most useful is in business type settings, where the translator waits for the speaker to finish and then translates (this is the norm in Japan, I was only once on the receiving end of simultaneous translation and I hated it. With translation after the speech, you get to focus on the speaker and pick up all non-verbal signals. And of course if you actually speak or sort of understand the language, you have more time to think about your reply).

      3. Dave in Austin

        Putin is fluent in German becasue early in his career, when he was posted to Germany, he took seriously his need to learn the language and truly mastered it, unlike many of his peers. This gave him his first reputation.

        I wish Americans were as dedicated.

        1. SocalJimObjects

          US Ambassador to Indonesia (country of 300 million people, G20 member): Sung Y. Kim. Can’t speak Indonesian.
          US Ambassador to China (small country): Nicholas Burns. Can’t speak Chinese.
          US Ambassador to Japan (another small country): Rahm Emanuel. Can speak Japanese. Just kidding.

          Ok, ok, so I know ambassadorships are meant for close allies, etc, etc, but seriously? How do you engage with the powers in Asia if your main representatives can’t speak the local language?

          It’s not all bad however. I’ve had to visit the American Embassy for a visa or two and the American officers that I dealt with knew how to speak the local language.

          1. Still?

            Many of them are that dedicated, like a family member of mine who was stationed in the USAF in Germany for a few years and learned both German and Russian to fluency. An ambassadorship is a different animal altogether than the foreign service and military.

      4. Yves Smith Post author

        No, you did not go watch the Putin statement. He said pricing mechanisms in existing contracts would not change. The “pay in roubles” is a device for forcing payments to be made to Russian banks because they are the only place you can get access to enough roubles to convert a payment as big as a gas payment made in euros or dollars or sterling to roubles.

        If Putin said, “You can’t sanction any more Russian banks” the West would have done so just to make the point. He’s achieving that end via the commodities hammer.

        New contracts are likely to be explicitly denominated in roubles but Putin is not imposing a contract change, which is what you are suggesting. Gas is pretty much always sold pursuant to long-term contracts.

        1. Harry

          You are right. I did not watch the video. Im not sure about the precise details on this and they do matter.

  3. joeC100

    There is a very insightful interview with Scott Ritter about what is happening on the ground in Ukraine I listened to late yesterday. He was clear that the Russian forces near Kiev were a faint to tie down Ukraine forces in the north while allowing Russian forces in the East to fully enclose the bulk of the Ukraine army facing the Donbas. I will try to dig up and post the url later this morning. Ritter seems quite balanced as he included his observations on where the Russian forces have screwed up.

    I just checked and this long interview is at Gonzalo Lira’s Twitter feed. The title is “Going Live With Scott Ritter” on 3/30.

    1. Jack

      Yes, that was a great interview. Two things I got from it that I had not previously heard were that 1, the Russia FSB screwed up in their estimation of the willingness of the Ukraine government entities in accepting Russian troops in their cities. Many of the Ukraine early victories were due to this. Lightly armed Russians would enter cities like Kharkov thinking they would be welcomed with open arms and got quickly blown away. 2, it was very interesting to hear how Russia has changed their military tactics for this war. Russia has according to Ritter always been about massive firepower being used and then overwhelming force applied to take advantage of the results. In the Ukraine the Russians did not use this tactic. They were very careful and were almost surgical in how force was applied. Since they were not well trained in these tactics they made mistakes and according to Ritter the Ukrainian army is good enough to take advantage of those mistakes and give the Russians a bloody nose.

      1. Jen

        In addition to the two things you mentioned the other thing I got from that interview was that Ritter thinks the likelihood of NATO involvement decreased after Biden’s regime change “gaffe.”

      2. Yves Smith Post author

        Ritter did not say anything like “Welcome with open arms”. He said “Stand aside and let us transit through” on the assumption that mayors would understand that saying no would lead to casualties and damage to property. That’s still an awfully big ask but not totally delusional.

      3. Polar Socialist

        Regarding “collaboration” with the occupying Russians, Zelensky quickly signed a law that punishes collaborators with 15 years in prison. Collaborator being a mayor who accepts humanitarian aid from the occupiers. Or even meets with the enemy. I think at least two mayors of small towns that did negotiate with occupiers did get nightly visitors and were found dead in the morning. SBU did detain in Kiev a daughter of one bigger city mayor (Melitopol?) accused of collaboration forcing him to publicly address Zelensky.

        I may be completely at loss here, but I do recall that very early a high ranking Aidar commander with his entourage was sent to Kharkov to make sure the city fights – and keep them away from Kiev and the allure of a coup.

  4. upstater

    Pardon my cerebral denseness… I get that payment in roubles supports Russia’s currency. But if EU customers need to deliver roubles to Gazprom by sending euros to a non-sanctioned Russian bank to buy roubles, doesn’t Russia end up with more euros that can’t be spent because of sanctions ?? As Yves put it weeks ago it is like being paid in bags of feathers. And since energy producers are mostly nationalized and those funds support the government budget I’m assuming the euros can’t be spent on imports by private businesses buying those euros (e.g., an auto manufacturer buying parts from China or Germany to resume production or payments for leased airliners, etc).

    1. Yves Smith Post author

      First, the much more binding sanctions are the dollar sanctions. The euro sanctions are leakier.

      Second, Russian banks that are not sanctioned can still make payments in euros.

      1. Keith Newman

        Yves partly answers one of the questions I have in moderation (at least I hope it’s in moderation. I didn’t get the awaiting moderation message). Still, how much can Russia actually buy through leaky sanctions?

        1. Yves Smith Post author

          There are not bars on Russia buying in Europe or even the US. There are bars on particular institutions but other institutions are not blocked.

    2. amused_in_sf

      *Someone* ends up with euros. Presumably, this entity gave something of value previously to Russia in order to acquire the rubles they traded for euros. Maybe they sent washing machines, or gold, or computer chips, etc.

      My feelings all along was that this announcement from Putin was basically him saying “converting the currencies is not our problem anymore, it’s your problem”. It should not be an issue if there are sufficient non-sanctioned entities to send imports to Russia (who then put their rubles on the exchange markets), but it is up to the buyers of Russian energy to keep the exchange system afloat.

      Now, what Russia plans to do with their trade surplus, as they can’t park it in western countries via asset purchases, is another issue. Maybe the ruble will skyrocket?

    3. Jose Freitas

      I think at the very least they will be capable of using those euros accounts to make payments on bonds, debt and so on, perhaps even using those euros to buy dollars for that purpose.

  5. timbers

    If Scholz isn’t careful it may occur to him that having conversations with Putin and Russians can be very beneficial to Germany and her people. And we can’t have that because it would be a major US foreign policy setback.

    1. Yves Smith Post author

      You obviously did not read the post., which is a requirement for commenting. The change Russia is requiring is a nothingburger, even according to the Western press, and is also a logical response to the Western sanctions. How is taking $300 billion of central bank reserves not aggression? That’s tantamount to reneging on $300 billion in past purchases of Russian goods. Russia does not want to be stiffed again.

  6. The Rev Kev

    An interesting aspect this is that some people are talking about a PetroRuble which may or may not happen long term. But what is of more interest is if the Russians decide to turn up the pain dial and say that they will use the same scheme now that the mechanism principles have been worked out for other commodities. So this month it is gas. In May oil will be added. In June you will have titanium added to this list. In July they add wheat to the mixture and so on.

    Only to those ‘unfriendly’ nations of course. Of course this will add a fracture point in the international continuity. Since the bulk of the nations aren’t targeted, they will congratulate themselves for not signing up to this insanity. Those that will be effected on the other hand on the ‘unfriendly’ nations list, will probably demand that all the other nations join them in sanctioning Russia which would add their countries to this list. Yeah, nah! Certainly China and India have seen how the same sanction regime can be turned onto any country at will which means themselves down the track.

    At this point, I am going to take a guess. In the old day the US had a plan for attacking nearly every big country in the world and on my computer I have a copy of the pre-WW2 one for Canada. Most nations do this as a matter of course. So what is the bet that the US is now developing sanctions plans for every country in the world so that when needed, they only have to take it down from a shelf? And I bet that countries like China and India may be thinking the same thing.

    1. Paradan

      I’m pretty sure that China has the capability to counter sanction the US in a way that would shut down almost all of our hospitals and pharmacies. They also could seize whatever manufacturing is still in place in China. Seems like they’d crush us if we made a serious move against them.

      1. The Rev Kev

        I totally agree. So I don’t understand how some people in Washington are threatening China with sanctions if they do not ‘get with the program’. It’s nuts.

        1. Pat

          The only way it would be important to those making the decisions in Washington is if they thought such issues will effect them. They don’t.
          And this is predicated on two erroneous beliefs.

          None of them currently have to worry about how much their medical care costs. They either get it from the government where they are always going to be front of the line or even with insurance they will be the exception to insurance policies. They have no reason to believe that any of that would change if drugs were to become rare.

          They do not fear that deadly policies will cause Americans to take it out on them. Despite the hyperventilation about January 6th, nobody in government actually fears the public. Hell they have effectively been making deadly public policy for years, that recent public health choices favoring economic entities rather than health that guarantee more people will die than necessary and yet no one loses their job. We can list policy after policy where huge portions of the public suffered unnecessarily because it advanced people at the top of our government and their backers. The American public just takes it. No one at the top loses except a few years where they pull the strings – not money, not perks, not even being exceptions to rules and laws. Why would that change.
          Consequences are for others. This will just clear out the rabble even faster. It is only nuts if you are foolish enough to think that people aren’t just another commodity.

          Yeah I have come to the conclusion that our government is largely made of narcissistic psychopaths and that is the result of decades of them calling too many shots.

      1. Dave in Austin

        Actually I’ve done a lot of research on the pre-WW II U.S. planning process. The Canadian plan was just an exercize. The details of the assumptions make it obvious the real nation was not a Canada. But when it got out it ruffled a lot of newspaper feathers.

    2. Alex Cox

      “In the old day the US had a plan for attacking nearly every big country in the world and on my computer I have a copy of the pre-WW2 one for Canada”

      Is it the book The Defence of the Undefended Border by Richard Preston? It’s a fascinating discussion of US war plans for the invasion of Canada. Free downloads are available.

    3. Kolyn Phlabyn

      We can also add Neon gas. Ukraine production is about 60% of the worlds supply but interestingly the raw material comes from Russia’s steel production, so that’s another commodity they effectively control. And Neon gas is a critical component for semi-conductor productions. So either through moving payments to rubles and controlling supply they have a massive impact over the semiconductor industry.

      I’m increasingly of the mind that the ‘sanctions from hell’ were not fully comprehended in particular by the European leadership. I see how Washington benefits through driving a wedge between EU/Russia, boosting U.S. industries – gas, oil, weapons, food, as Michal Hudson has comprehensively outlined elsewhere. But Europe gains nothing only inflation & isolation.

    1. tindrum

      well the problem doesn’t yet exist as Russia is still delivering gas. It also looks as if Russia is happy to keep the gas flowing and maintain relations with the EU.

    1. Kolyn Phlabyn

      I don’t think there is any possibility of Nord Stream 2 opening absent a new German government that’s prepared for a mighty quarrel with Washington. It’s dead for the foreseeable future.

  7. Sibiryak


    Russian President Vladimir Putin has signed a decree regulating gas trade with designated ‘unfriendly’ states, saying countries wishing to do business with Moscow must open bank accounts in Russian banks, and clarifying that existing contracts will be frozen unless ruble payments are made.

    “We are offering contractors from these countries a clear and transparent scheme. To purchase Russian natural gas, they must open ruble accounts in Russian banks. It is from these accounts that payments for gas supplied starting tomorrow, 1 April, will be paid,” Putin said, speaking at a meeting on aviation industry matters on Thursday.

    Putin stressed that Russia would continue to meet its obligations in supplying gas at volumes and at prices set under existing contracts. However, the need to pay in Russian currency is not up for negotiation, according to the president.

    “No one sells anything for free, and we too will not engage in charity. That is, existing contracts [not paid for in rubles] will be stopped,” he said.


    1. amused_in_sf

      Like I said in a previous comment, the whole thing is about when and how the currency exchange happens, and who has to deal with the hassle of sanctions enforcement. It’s now the customers who have to convert their money, and who take the risk of overzealous sanctions implementation.

    2. Wukchumni

      …an April fuels day joke?

      It’s quite brilliant, the Rubles for payment scheme.

      When I traded physical forex in the 80’s, there were certain countries you just didn’t want to make a market in, anything Latin American, Asian (aside from JP, SK & Singapore) or African (aside from the SA Rand) and of course there was no demand for any of the Communist currencies, there were 200 or so countries and you really only did business in say 35 currencies, the rest didn’t matter.

      The Ruble until recently was one of those currencies that didn’t matter.

      “We are offering contractors from these countries a clear and transparent scheme. To purchase Russian natural gas, they must open ruble accounts in Russian banks. It is from these accounts that payments for gas supplied starting tomorrow, 1 April, will be paid,” Putin said, speaking at a meeting on aviation industry matters on Thursday.

    3. Dftbs

      I really like the idea of Scholz getting a term sheet on FX swaps and realizing: Scheisse. Wir zahlen in Rouble.

  8. LadyXoc

    Seems like so many in West cannot break the “Kremlinology” habit, that of observing from afar (and without benefit of history or language skills) and making baseless pronouncements about what is going on in Russia, and in particular, what Russia plans to do vis a vis Ukraine and NATO/US. For quite some time now, it has been instructive to actually listen to/read the statements of Putin, Lavrov and Shoigu. They lay it all out – you don’t need to study the tea leaves. Kiev will continue to be shelled until a peace agreement is reached. Russia will demand payment in its own currency for its own production. Easy to understand and plainly stated. I very much enjoy reading the Chinese readout of the Xi-Biden meeting and the recent readouts regarding progress of negotiations in Istanbul. Boy did the US blow it this time.

      1. Yves Smith Post author

        Search engines are your friend. We linked to it and discussed it after the Biden-Xi call, including the differences between the US and Chinese readout (China courteously provides English versions, I assume Russia does too but access to the Kremlin site is limited, so a reader in an unblocked country kindly got it for me for the Putin-Scholz call).


        And our discussion at the time:

        Readout of President Joseph R. Biden Jr. Call with President Xi Jinping of the People’s Republic of China White House

        President Xi Jinping Has a Video Call with US President Joe Biden Ministry of Foreign Affairs of the People’s Republic of China. Way way more detail than US version and released almost immediately after the call, unlike US version. I welcome reader input, but this looks for the US to have come out on the very bad end of plausible outcomes. Xi upped the ante re Taiwan, telling Biden the US was responsible for loose-lipped talk regarding Taiwan independence, with Biden reaffirmed that the US does not support. So it’s now on Biden’s desk to turn those, ahem, misperceptions around. Xi also made it clear that China will not intermediate among the US, NATO, Ukraine, and Russia (which the US has always meant to equate to “China muscles Russia to stand down.”).

    1. Amfortas the hippie

      not hard to grok, at all.
      for a long time, i’d see something somewhere about some big speech Putin…or Lavrov…made, note the translated transcript in the Wapo or whatever..and then go to http://en.kremlin.ru/ to see the official russian transcript/translation.
      since around 2014(Maidan), the various mouthpieces of USEmpire have been playing around with the translations…ie: to compare and contrast the 2 has been …interesting…to say the least.
      Nothing overt…very subtle word choices.
      of course, now…i can’t access the Kremlin at all,lol.
      First Amendment Right to Information be damned.

      whenever there’s been a conflict….say, with Iran…i’ve always found it helpful to go to the source. Mere prudence, and a corrective for whatever wool our masters are trying to befog us with.

      all that said, Putin/Russia have been as clear as a bell for decades about their intentions and concerns…this entire mess is on the neocons and other various bubble dwellers in DC…because they ignored and/or didn’t take all those statements seriously, preferring their own fanciful and dangerous narrative framework.

      1. Duke of Prunes

        Same happened with Trump. In the early days while I was giving him the benefit of the doubt, I’d watch a speech and think “ok, that wasn’t so awful”, but then the line-up of network TV pundits would progressively spin and spin to erase the reasonable things he said, twisting some to support their narrative and amplify the crazy talk, often making it even crazier through selective editing. That is, the first, more junior pundit would kind of summarize, the next injected some talking points, and by the time they got to the Karl guy (on ABC), it was full on “orange man bad” spin. I was like “did they even watch the same speech?” (now the manditory disclaimer: I’m not a Trumper… I believe I was operating from an open mind / benefit of the doubt perspective). Anyway, I stopped watching in early 2016 because it was clear it didn’t matter what was said, the MSM was going to push “orange man bad” regardless. Exactly the same thing is happening with Putin… but why would I expect the same people to operate any differently?

      2. Oh

        I wonder if it’s so easy to call them neo-cons when this kind of behavior (we’re #!, USA, USA) is stitched into the American psyche. Barring a minority of left wingers (like those in the commentariat here) most Americans think that they’re are so exceptional and are all for grabbing the resources of other countries to keep their life comfortable. Most don’t want to make any sacrifices to slow down global warming, improve the environment in general or think of peaceful co-existence. They’ll put up with totalitarian and fascist behavior of corporations and their government and curbing of their fundamental rights, Hip, hip, Hooray! USA!

      3. John Zelnicker

        Amfortas – It may be possible to access Russian web sites by using a VPN and choosing a server in a country that isn’t part of the sanctions regime.

        I was able to watch the PressTV video Yves posted yesterday using this method, but I haven’t tried an “ru” site.

    2. Michael

      Kiev will continue to be shelled until a peace agreement is reached.

      That’s OTT. Bottled up, yes.

      But you are right, the RF & CCP statements are worthwhile for their directness and our ability to monitor them vs US-EU propaganda.

      1. That's 'Mister' To You

        Just maybe the Ukrainian leadership ought not to have launched a week of increasingly intense shelling of Donbass, the proximate opening of hostilities, while the Russians were still entirely within Russia, instead of simply refusing to negotiate in any serious fashion or even at all – as with Saddam, as with the Afghans concerning bin Laden, as with Assad, as with Ghadaffi, as with Cuba, or even Hitler’s Germany, the object of a US demand for unconditional surrender, closing off entirely the prospect of splitting off powerful factions which may well have been able to oust Hitler, shortening the war by years. Ditto Japan.

  9. Pavlov's snack

    Ooof, my Gazprom shares. My hours billable to Rosneft. That’s a “my” problem. For practical purposes, Russian petro will sell at a discount at a lower volume regardless of currency issues or surreptitious ship-to-ship / ship-to-offshore terminal transfers. According to Bruegel, no European nation purchases more than 25% of its energy from Russia. Does no one else foresee an oil-for-food program? Historically that’s how these things shake-out.

    A trick would have been introducing some rouble payments prior to an invasion. At stake in the “Heroic Repositioning”, the shale deposit conveyances of Eastern Ukraine won’t make up the lost volume in the near term. Everything is under control.

    1. Greg

      Oil for food only works when one party has the oil, and the other has the food. Russia has both.

  10. redleg

    If Russia decides to change the Kiev envelopment operation from “move” to “hold”, it will require fewer soldiers.
    The standard for offensive operations, i.e. “move”, is a 3 to 1 advantage at the point of attack. The opposite is standard for defending, i.e. “hold”, you want to avoid being outnumbered 3 to 1.
    In practice it means that you can withdraw a significant number of units from the sector when you go on the defensive, and your opponent needs to reinforce their units to dislodge you.
    Further, it appears that the ground had thawed, which means that soldiers can dig in, making defensive positions extremely hard to locate and overcome without armor support (e.g. WW1).
    War is about logistics. It appears that the Russians have freedom of movement and the Ukrainians don’t, and that’s an indication of who is winning the war.

  11. Tom Pfotzer

    New situation for Russia:

    a. Payments are made to Russian banks, under Russian control and that removes the possibility of reserves-theft by EU or US. Goal 1 met.

    b. Precedent set, expectations set, for preventing reserves-theft for other resource flows (grain, iron ore, oil, titanium, etc.). Goal 2 met.

    Now the question comes “What can Russia buy with its Euros?”

    A.1: Whatever the EU wishes to continue selling to the Russians. That’s the EU’s decision to make, and if the EU blocks those flows, then Russia steps it up one (crucial) click and says “Further purchases will be denominated in Roubles or Yuan or Rupees, which Russia can use to buy the things it actually needs” *

    A.2: Whatever the rest of the world chooses to sell to Russia in exchange for Euros. Euros are used widely – not as much as dollars, but still pretty widely. If EU decides to choke off that flow by sanctioning the intermediary banks that handle the exchange process, then Russia reverts back to a stricter version of A.1 above.

    The demand for Russian resources isn’t going to abate. All those resources are fungible, key inputs to any modern economy.

    Russia will concurrently ramp up trade with China and India. That’s the long-term fundamental play. The thing the West fears most is Asian integration. And that’s exactly what I’d provide, in spades, if I was a Russian policy-maker.

    Trade flows controls economics, politics, and standards of living. Move the trade flows.


    Looking at the problem from the West’s point of view, I hark back to Dr. Hudson’s core question set out a few posts ago: “How can you have a good Western standard of living if you’ve hollowed out your national wealth-building capacity?”

    Well, you can’t, of course. That’s what the smash-and-grab Western tactics are all about. We have to extract wealth from others, because we’re not creating enough of our own.

    Russian/China have got most of the groundwork in place to prevent the smash-and-grab.

    So when does the West “stop digging”, and start building Western domestic economies that actually work?

    What level of failure, pain, humiliation and stupid does it take?


    * another key question is “what does Russia actually need from the West?”. Every week of EU shutting off exports to Russia, and possibly to China, is another week that Russia and China devise alternatives to Western products.

    Once the alternatives are in place, there’s no incentive to return to Western sources, even under very different political circumstances.

    Habits endure.

    1. Charlie Sheldon

      Tom your great post triggered this thought I suspect everyone else who reads this page had weeks ago. I have wondered all along if this whole play (Ukrainian operation/invasion) is a well thought out, risk-assessment based, operation to move away from the dollar and Western banking and economic power (the so called “soft” power so glaringly shown in seizing Russia’s billions) to a system not controlled by the West, meaning English speaking and European nations, mainly. In this strategy, the hammer is Russia and Putin’s control of the oil and gas to Europe. This power is a power China does not have. China thus could not have forced this issue, but Russia could and did. I am wondering if some people could have gamed this all out, anticipated the western sanction reaction, and planned accordingly.

      In this view, there has been a double-layered play going on. On one level, the first level, this is about Russia stopping the 8-year Donbass war, protecting Donbass, securing Crimea and a corridor, keeping Ukraine from NATO, and reducing if possible the nazis the western MSM has memory-holed since the invasion began. The west responded by immediately declaring this is not the agenda, the agenda is Putin recreating the Soviet Empire, and readying to invade all of Europe. Economic warfare with sanctions began, heedless of the obvious blowback, which daily increases. At this level I think you could argue that Putin and Russia have been succeeding in meeting their goals, perhaps a bit more slowly than originally planned, but perhaps not.

      And the west has shown, glaringly, that the real preferred enemy since at least the Russian Revolution has been the soviet or slavic or Russian or formerly communist bloc, with the battle against the Nazis in WW2 being really a brief departure. Remember the 20,000 Nazis in Madison Square Garden in 1939? The thousands of Nazis brought to the US and England for scientific and administrative support? There is a lot of documentation that before WW2 there were many in the US and Europe who preferred to take on Stalin and Russia and not Hitler. Point being, this anti-Russian nearly genetic thread among us has now placed us in the position where it seems we are collectively deciding, yes the Azovs are bad but the Russians are worse!

      But, at the higher, more strategic level, there is this whole play to shift currency systems, value, force the break with the dollar’s power, and this is perhaps what the Russia-China pre Olympics meeting was about, the culmination of months of planning, perhaps.

      I have long been of the view that usually when it’s a choice between a vast conspiracy and a simple f**k up the f**k up wins 99 times out of 100. However, in this case I am inclined to think this has all been planned with our reactions anticipated. And, in the end, when prices spike and costs rage, it will be the Russians and Chinese who will be able to suffer it out far better than the Americans or Europeans.

      1. Eudora Welty

        I wonder if the Russians and/or Chinese have used Artificial Intelligence to game out all the possibilities. Didn’t someone say recently that the Chinese are way ahead of the US in AI & its applications. It seems like they are trying sincerely to create systemic global change without involving nuclear annihilation

        1. Tom Pfotzer


          It wouldn’t take a great feat of AI to sort this out. The non-West has been raging, and fulminating, and planning and preparing for decades.

          It just happens to be a very tough problem that required a lot of endurance, and concentration and determination to prepare for.

          And they did, and the time came, and here it is.


          Then there’s the other question of “what is a modest middle-class ‘Merkin person to do when confronted with the domestic equivalent of what Asia and the Global South has had to deal with all these years?”

          I hope helps explain why I advocate for bottom-up solutions.

      2. juno mas

        I don’t believe their was some “grand plan” to implement the sort of global shift politically/economically that will likely be the result of the Ukraine conflict. But Russia and China have been observing US/EU proclivities for decades and have likely anticipated “best practices” for today’s global events.

        I would say Russia (Putin) has responded to events more nimbly than the West. Preparation is the source of genius.

      3. RobertC

        Charlie Sheldon — But, at the higher, more strategic level, there is this whole play to shift currency systems, value, force the break with the dollar’s power, and this is perhaps what the Russia-China pre Olympics meeting was about, the culmination of months of planning, perhaps.

        Biden’s Ukraine-related actions are foreign policy but Putin’s are existential.

        Putin has set Russians and Russia on a new course: Eastwards. Into China’s welcoming arms.

        There is no turning back.

        There is nothing…repeat nothing…the West could offer to change this course.

        China’s perspective is not quite as dire but is serious.

        To feed its 1.4B people China cannot allow the ever expanding US-led NATO access to the human, mineral and agricultural riches of Russia and its shared 2,600 mile militarily-secure and economically-transparent border.

        If Putin fails and Xi accedes to Biden’s threats, China will start down the slippery slope of vassalization to the US. Its stored wheat will be given to MENA, US troops will occupy Taiwan, etc etc. Another century of humiliation.

        And loss of the Mandate of Heaven

        The people are of supreme importance; the altars of the gods of earth and grain come next; last comes the ruler. That is why he who gains the confidence of the multitudinous people will be Emperor… When a feudal lord endangers the altars of the gods of earth and grain, he should be replaced. When the sacrificial animals are sleek, the offerings are clean and the sacrifices are observed at due times, and yet floods and droughts come [by the agency of Heaven], then the altars should be replaced. – Mencius

        Xi, whose re-confirmation is this November, will not lose the Mandate of Heaven.

        On a lighter note there’s my Great Reset post RobertC March 18, 2022 at 12:32 pm

      4. Tom Pfotzer

        Charlie: I’m in the well-designed plan camp, as well. There are people who’ve been trained for centuries (via family dynasties) to rule others. It’s very tough to do; it takes immense skill, and that sort of skill and self-assuredness doesn’t grow on trees.

        And building the network of like-mindeds, staffed into key positions – that takes a very long time.

        One “tell” is the long-running process which delivered up the long siege on Russia, the Brexit / wagon-circling of the Anglosphere, the Trade War on China, the 911 blitzkrieg…those things take immense planning and coordination to achieve.

        The other “tell” is the astonishing speed and on-message synchronization of the Financial and Propaganda war against Russia. That was so speedy, so extreme, so message-synchronized that I really don’t think that’s possible via organic, dispersed, individual endeavor. Too much, too fast, too homogeneous.

        That’s probably not a surprise to anyone, so let’s not dwell on it.

        What I find most interesting is that there assuredly is _not_ agreement across the mercantile class that our current trajectory (econ, political, military) is proper and good. And we’re not talking about armchair QBs and wanna-be commentators.

        Big, powerful, capable people within the controllership ranks are quite unhappy. They’ve read history, they understand how economics works, they understand the mechanisms by which cultures are shaped. I expect them to assert themselves shortly.

        I think they are as astonished as we are that these stupid policies have taken us all this far into the ditch.

        In order for that faction to have confidence in “the people”, we need to continue to act like we’re eager to support policies that lead us out of this morass.

        If you were them, you’d be wondering if “anyone’s awake out there”, right?


        A note to the controllership team: If you’d put forward policies which earned respect, you’d likely get it.

    2. RobertC

      Tom Pfotzer — “Russia will concurrently ramp up trade with China and India. That’s the long-term fundamental play. The thing the West fears most is Asian integration. And that’s exactly what I’d provide, in spades, if I was a Russian policy-maker.”

      And Asian integration is happening as we can see at Sausage Factory March 27, 2022 at 5:44 am

      And here’s the map Eurasian Economic Union

      Yves — apologies for the duplicate link at juno mas above.

  12. Safety First

    Here is the text, in Russian, of today’s Presidential Decree on gas shipments: https://www.interfax.ru/business/832451 – the Kremlin.ru site is having a megaton of issues, likely being DDOS’ed on a constant basis, so I had to get this from Interfax. Key points:

    – LNG is excluded, we are only talking about “pipeline gas”.

    – Gazprom is directly prohibited from shipping gas unless it is paid in rubles.

    – To facilitate this, a) Gazprom Bank will open an account in rubles, and a parallel account in foreign currency (termed “K-accounts”, likely for some legal reasons); b) there is a section detailing how these accounts are opened by Gazprom without the “foreign owner” actually participating in the process, basically to get around anti-laundering laws.

    – Customer will deposit euros (let’s say) with Gazprom Bank into “their” euro K-account, and instruct Gazprom to procure X rubles to make the payment for the gas. Gazprom Bank will sell the euros on the Moscow exchange, and credit the rubles thus received to the customer’s ruble K-account, and then pay Gazprom for the gas delivery from that ruble account.

    – The Russian Central Bank is directed to establish all the necessary procedures viz. these K-accounts, then the Customs Service is supposed to confirm the procedures for release of the gas, both “within 10 days” of the decree’s effective date (March 31). The Central Bank also gets leeway to develop “alternative FX trading mechanisms”.

    – There is a government official (from the Foreign Investments Commission) empowered to grant waivers to foreign customers, seemingly at will.

    In other words. One – there is an explicit assumption that European customers can make euro deposits into Gazprom Bank. Now, if you read the US banking sanctions document from February 24 (https://www.whitehouse.gov/briefing-room/statements-releases/2022/02/24/fact-sheet-joined-by-allies-and-partners-the-united-states-imposes-devastating-costs-on-russia/), Gazprom Bank is only prevented from issuing new debt and equity in the West, so if this is still the case than there is no problem.

    Two – the European customer never has to touch the ruble market or own rubles, just instruct Gazprom to sell down the euros in its K-account in sufficient quantity to offset whatever they need to pay for the gas. I am assuming the Central Bank will push out a document detailing how the FX rate will be set and what the associated transaction costs are, if any.

    Three – from the standpoint of existing contracts, it looks like the requirement of “paying for it in euros” isn’t violated, or at least you can argue as much.

    Four – the waiver loophole is included as a sort of an obvious carrot, that Germany and the like will probably ignore, but might be a real inducement to some smaller countries like Moldova. Which has had a problem going back to November-December of finding enough money to pay for Russian gas in ANY currency.

    Five – the real question is, what will the Russian Central Bank do with all these euros (assuming the scheme works)? In the past, they would have recycled them outside the country to keep the euro-ruble exchange rate down and to pay for some of the now-sanctioned imports. Possibly they might send the euros along to China and South Korea (which got a waiver from the US to keep trading with the Russians), and THEY then spend the euros back in Europe?

    Basically, at first blush seems reasonable and not quite as draconian as it might have been. The question is, will European buyers go along with this, and if they do, this might yet turn out to be one of the strangest sanctions regimes I’ve seen in the past 20 years or so.

    1. NL

      the real question is, what will the Russian Central Bank do with all these euros?

      The Central Bank is not involved? — “Gazprom Bank will sell the euros on the Moscow exchange” — so if no one wants Euro, then there is no exchange of Euros for rubles and no sale, no? Am I missing something? Or more likely, ruble appreciates vs euro until there is a buyer, no?

    2. amused_in_sf

      Great summary, Safety First, and your point #5 is the fun one to watch. Will the exchange rate on the exchange Gazprom uses diverge from ones in the western world, and will that hold up under the contracts? The idea that gas prices go up in Europe because their payments must be laundered is wild!

    3. Dave in Austin

      The Russians can buy a lot of Suezmax tankers registered in Liberia and the Marshal Island with Euros.

  13. John k

    Googled Russia eu gas lines…
    Russia could have said to Germany, ‘I will only sell gas thru nordstream line’ (which bypasses Ukraine/Poland) because Ukraine has been stealing gas for years. Perhaps this will be part of negotiations, gas to/thru Ukraine continues but Russia gets what they want.
    I read Russia has been exporting $40 bill, importing $20 bill, so at best it only needs to export half as much, and less to the extent sanctions prevent it from buying stuff it wants. Clearly former desire to accumulate fx is gone. So seems in their interest to reduce commodity exports, which will boost prices. Certainly logical to cut strategic items, Ti etc… and reserve for friendlies.

  14. Sibiryak


    French Finance Minister Bruno Le Maire and German Economy Minister Robert Habeck said on Thursday that their countries won’t buy Russian gas with rubles, insisting that gas contracts in euros “must be observed.”

  15. Susan the other

    Why can’t the MSM do work like this? Well, because this impeccable summary is as logical as it is factual. It is the very definition of what Ukraine reporting should be. Objective and full of information that makes sense. Yves could blow them all out of the water because once you’ve read something this coherent, MSM “news” is just unacceptable.

  16. JTMcPhee

    In all this long-game discussion, I am wondering if Putin is not just pursuing comparative advantage for the Other Bloc, but thinking about nudging the whole 8 billion of us, in our blind thrashing and consumptive frenzy, toward something approaching commensalism, comity and sustainable presence on the planet.

    Wishful thinking, I’m sure, but maybe he and his brain trust and Xi and his, with their long views, might be thinking along those lines, at least in part? Certainly what they are showing us Western looters looks more like a healthy set of relations and behaviors than what our barons and emperors have been trying so hard to force the world into, under their greasy thumbs — destructive dead-end globalization.

  17. Irrational

    This is all I can find on the Scholz-Putin call on the German govt site.
    Basically says nothing about what Yves said: payment to be made to Gazprombank, which will convert into rubles. No transcript I can find.

  18. RobertC

    Yesterday Lex March 30, 2022 at 8:39 am observed

    I’ve been coming around to the idea that Russia is also applying Deep Operations concepts at the geo-political/grand strategy scale within the context of its realist foreign policy.

    By all means take “Roubles for Gas” at face value.

    But also examine it from the perspective of Deep operation. Also the Gerasimov doctrine

    The Gerasimov Doctrine, named after the Chief of the General Staff of the Russian Armed Forces Valery Gerasimov, is a foreign policy doctrine.

    The doctrine redefines the modern concept of interstate conflict and warfare puts it on a par with political, economic, informational, humanitarian and other non-military activities. The doctrine became known after its publication in February 2013 and the subsequent actions of Russia in relation to Ukraine, which fully coincide with the theses of this doctrine. According to a number of researchers, the key elements of the Gerasimov Doctrine underlie the concept of New Generation Warfare. However, there are opinions that hybrid warfare is alien to Russian military theory.

    And this explains Yves fifth bullet above

    Fifth, as an unexpected bonus, Putin and Scholz had a direct conversation. When two national leaders are seriously at odds, any interaction that is less than testy is a minor de-escalation.

    Their conversation is not just a de-escalation — it’s a weakening of Biden’s sanctions and demonization regime.

    My assessment is Putin is probing Biden’s “front” to expose and weaken both the sanctions regime and the Atlantic (and other, eg India) alliances. He’s forcing Biden into “Whack-A-Mole” maneuver warfare rather than the intended “Maginot Line” defense.

    Biden and his small foreign policy and national security team did not have formal sanction plans, courses of action or even protocols with Europe in place. Putin’s invasion put them on their back foot and they’re still flailing responding to Putin who has planned this, together with China, since the 2014 Revolution of Dignity (Maidan Revolution).

    Satire Alert

    That Wikipedia picture of Gerasimov is when he just received a puppy.

  19. Bazarov

    If I’m understanding this roubles for gas scheme as it concerns the Germans–it would work like this:

    1.) In order to pay for the gas, the German buyers set up an account at a Russian bank that is not sanctioned.

    2.) They provide the requisite euros to that Russian bank, which then converts the euros into roubles placed into the German account.

    3.) The roubles in the German account are transferred into a Gazprom account at a Russian bank.

    4.) Gazprom releases the gas to Germany, completing the transaction.

    At the end of all this, the Russian economy ends up with both the roubles *and* the euros, whereas before the sanctions they’d only have dollars.

    So in that sense, the Russians are getting *more* for their gas: euros + roubles as opposed to just USD.

    Is that correct?

    1. Mel

      I don’t think so. I think that when the European Buyer’s non-sanctioned Russian bank pays Gazprom to deliver the gas, the bank pays with their own roubles that they already have. The “roubles” that the non-sanctioned bank puts into the buyer’s account (“converts”) are really just a promise by the bank to pay out roubles when the depositor asks them to.
      Two possible ways around:
      1) the non-sanctioned bank went to the foreign-exchange market and gave up the euros to buy roubles which somebody else already had.
      2) the non-sanctioned bank went to the Russian Federation Central Bank to borrow or be given some more roubles in their reserve account that the non-sanctioned bank can then spend on their depositors’ behalf.

      1. Bazarov

        Thank you for this explanation.

        My confusion centers on the idea of “conversion”–I had taken it to mean that roubles are created by the central bank to match the “value” of the euros without destroying the euros. In my mental model, the Russian economy would in essence “print” roubles by digitally manifesting them while also keeping the euros (there doesn’t seem to be a mechanism to destroy the euros after they’re converted, but perhaps I’m mistaken in that impression).

        You’re saying that this is not the case in #1, as the foreign-exchange market offers roubles that have already been put into circulation in place of the euros.

        In #2, since the non-sanctioned bank is dealing directly with the Russian Federation Central Bank, I remain somewhat confused. Wouldn’t the Russian Federation Central Bank merely manifest the roubles digitally, as it would have the power of the printing press at its command? If so, wouldn’t euros *and* new roubles then be put into circulation in the Russian economy?

        I’m just trying to make sense of the idea of “conversion” of money in this sense. It remains somewhat mystified to me.

        1. Mel

          As far as I’ve figured it out, I agree with you on both counts.
          In case #2, I think orthodox bankers would say that the central bank loaned roubles to the non-sanctioned bank, with the euros as collateral.

      2. Yves Smith Post author

        No, Russia has been requiring its big energy companies to cross trades on the Moscow Exchange. For some reason they don’t like OTC markets.

        And in any event (I once had the biggest FX trading room in the world as my client) banks don’t do internal crosses (net customer sells versus buys, as in do the trade internally). Too much room for abuse on the price. Even for OTC, they go outside the bank to get a market price, since among other things, price varies somewhat by size of trade.

  20. RobertC


    It appears the Arabs aren’t waiting for Biden and are developing, together with Israel, a coherent approach constraining and moderating Iran’s actions after the JCPOA is restored Big diplomatic moves show a Middle East bracing for an Iran nuclear deal With the US having taken a step back from the Middle East, new alignments are taking shape

    This isn’t the only article advancing this theme. I’m getting the impression an informal coalition, that includes OPEC+ Russia and BRI China, is developing an approach to Iran “Welcome to the neighborhood, don’t be a jerk, Persia is history taught in schools, and we’ll join you for the Hajj.”

  21. kemerd

    Has anyone have any information on whether Russia changes contract prices to Rubles or do they simply say give me Ruble equivalent of that many euros?

    To me, it seems like latter but the former has the potential for Russia to get leverage to punish the Europeans via the exchange rate they would set.

    1. Yves Smith Post author

      Putin has not said anything that indicates that the price at the time of exchange is not the then spot market price. And the detailed procedures are consistent with that.

      And that’s irrelevant since he’s not asking buyers to meet a particular rouble price. He just want them to make the conversion to roubles, which requires using a non-sanctioned Russian bank. They still make the contract-stipulated price in euros, dollars, or sterling, as the case may be.

    2. Andrey Subbotin

      Apparently it will work the following way
      * contracts remain unchanged, priced in euros
      * european gas buyers transfer euros to GazpromBank account, a Russian bank not under sanctions
      * bank sells euros on Moscow forex and transfers rubles to Gazprom ruble account.

      Sounds like a climbdown, Effectively nothing changes for EU buyers.

      1. Yves Smith Post author

        No, it is not a climbdown. It is exactly how I predicted it would work based on Putin’s original statement. It appears you are willing to listen to it, despite my putting it near the top of every post on this topic.

        I have low tolerance for disinformation, not reading posts in full (a requirement for commenting set forth in our site Policies) and/or deliberate obtuseness.

        Putin stated the contract terms would remain unchanged. All he called for was a change in the payment currency, which means the FX would have to go through a Russian bank. You and others ignore the real and important implications of the fact that this means the required euro/dollar/sterling payment has to go to a Russian bank, which I set forth above.

        1. Andrey Subbotin

          The main thing you said is “To sell Euros, the EU needs to keep the Russian banks sanction-free”. That and PR benefits. But EU already said that it intends to keep buying Russian commodities and would keep select Russian banks sanction-free for this purpose. Even if previous payments were made to some western bank, Gasprom could change its account to (currently unsanctioned) Gasprombank for next payment without any presidential announcements. And EU would have to keep it unsanctioned for as long as it needed gas. So what extra benefit the technical ruble account managed by Gazprombank brings?

          1. Yves Smith Post author

            No, Gazprom cannot direct which bank sends the payment to its Gazprom account. No seller says “You have to open an account with Deutschebank and send payment from it to do business with me.” This is outside the existing contracts. Gazprom could only ASK for a contract waiver, which might not be granted. Even if so, asking for a waiver reopens the contract and the other side pretty much always demands a concession in return, like a change in price or a one-time penalty.

  22. sidd

    India to allow russian investment: economic times

    “India allowed Russia to invest in Indian corporate debt”

    “allow Russia to pay for these investments through a Reserve Bank of India account that has existed since the collapse of the Soviet Union three decades ago. Funds have accumulated pending payments for defence purchases made from Moscow.”

    “Russia will be allowed to invest in debt securities. ”



  23. sidd

    Reuters via Handelsblatt : Nationalization considered for Gazprom Germania and Rosneft Deutschland

    “The German economy ministry is considering expropriation of Gazprom (GAZP.MM) and Rosneft (ROSN.MM) units in the country ”

    “Handelsblatt reported on Thursday, citing government sources.”

    “Both companies are irreplaceable on the German energy market ”



    “discussions between top ministry officials and Chancellor Olaf Scholz “

    1. The Rev Kev

      Chancellor Olaf Scholz: ‘Gee, I wonder what would happen if I stored all those barrels of napalm on top of those barrels of phosphorus next to that shed full of 60 year-old dynamite.’

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