Some Additional Comments on the Russian Counter-Sanction of Requiring Gas Payments in Roubles

While the plural of anecdote is not data, Lambert and I noticed that the news flow today seems peculiarly, erm, flaccid. That seems peculiar since the geopolitical-fault-lines testing war in Ukraine is still on, and NATO and the G7 had a summit in Brussels yesterday, plus we have the new elephant in the room of the Russian only-rouble-payments-for-gas-if-you-whacked-our-banks counter-sanction.

Normally big players have some press set pieces ready to launch after major meetings, as foretold by Reuters: Biden’s Brussels trip to highlight new Russia sanctions, NATO posture plans. Japan was also set to announce additional sanctions and actually will, according to Nikkei:

Japanese Prime Minister Fumio Kishida promised to impose high tariffs on Russian imports on Thursday as the leaders of the Group of Seven nations gathered here to turn up the diplomatic and economic pressure on Moscow.

It turns out this centerpiece is ending Russia’s most favored nation status, which the countries that participated in the economic sanctions pledged to implement, so moving forward with that measure isn’t exactly a new sanction. However, Japan is barring exports to Russian defense-related companies and of luxury goods, and will try to prevent cryptocurrencies from being used to evade sanction.

But according to Nikkei the US did add to its Russian sanctions, although it’s not surprising that the press didn’t tout them, since they are symbolic:

The U.S. also announced a wave of fresh sanctions Thursday against Russian lawmakers, defense companies and individuals including the head of Sberbank, Russia’s largest bank.

Nikkei confirmed no big actions were taken at the summits:

The first face-to-face G-7 summit since Russia’s invasion of Ukraine served to showcase unity against Moscow. But the bloc’s joint statement includes no specific proposals for new responses or additional sanctions. It is unclear whether the meeting alone can alter Russian President Vladimir Putin’s behavior.

So one has to wonder what happened, since the intent of a session like this is to convey resolve. Was it that the leaders got realistic briefings on how the war is going? Or did Russia’s gas counter-sanction rearrange the agenda?

As far as the Russia gas-only-for-roubles counter-sanction, a lot of the commentary, particularly from officials, was not well informed. But this one at Reuters was an eye-opener:

Asked whether the United States would allow European nations that cannot manage without Russian gas to process payment in roubles without finding themselves in a breach of sanctions, a White House official said Washington was consulting with its allies.

So much for national sovereignity.

The Wall Street Journal reports that the US is happy to take advantage of the gas price squeeze taking steps to reduce the impact of the economic war it set off: U.S. to Boost Gas Deliveries to Europe Amid Scramble for New Supplies.

But the IEA had already pointed out that Europe was going to need to do a lot of energy belt-tightening over the next four months alone. And I have yet to see any energy expert indicate that it is possible for Europe to plug its energy hole in anything less than a few years, let alone the even bigger gap set to open up for countries who refuse to authorize payments in roubles.

Some examples of economic confusion. From DW:

ING bank’s chief economist, Carsten Brzeski, said that any attempt at trading currencies with India or China wouldn’t help either because Russia simply can’t make any payments to Western countries under the boycott. “Putin needs rubles to finance his war. In this sense it [the gas-for-ruble demand] is a smart move,” Brzeski told DW

Um, Russia is a sovereign currency issuer so it can always simply net spend to pay for internal expenses. However, in one of Putin’s speeches announcing the Ukraine campaign (forgive me for not looking it up), Putin made a point of saying Russia had the funds to go to war and would not need to “print”. From this remove, Russia has seemed to be concerned about deficit spending. Given that it has a financial crisis in the 1990s, likely means the government believes it needs to demonstrate fiscal rectitude to support the rouble.

Another argument made is that the Russian move will backfire because Russia needs those Euros and dollars. This of course ignores that the accepting dollars and Euros in the past allowed the West to expropriate them, and that the effect of the sanctions is also to prevent Russia from being able to make much use of these currencies abroad. Moscow Times added another bit of intel:

In many ways, it was Western countries that pushed Russia to take such a step because European companies’ suspension of trade with Russia led to a sharp decline in imports, and when there are no imports of goods and services, there is no need for the euro as a means of payment, Director of BCS World of Investment’s regional network for high-end clients Grigory Sosnovsky emphasized.

“Perhaps the move is a message or the first step on the long but inevitable road to Russia’s departure from dollar and euro payments. One thing is clear: the freezing of Russia’s assets cannot go unnoticed and Moscow will keep reacting to it,” the analyst concluded.

This part from DW also appears incorrect:

Putin’s gas-for-rubles plan would also bring Russia’s central bank back into the global financial system after sanctions have virtually cut it off from financial markets. “Putin would reinstall the central bank as a key player in the market because it is essential for paying gas bills with rubles,” [Jens] Südekum [a professor at the Institute for Competition Economics of Dusseldorf University] told DW.

Payments for Russian gas purchases are usually so large that the amount of rubles needed cannot currently be secured on foreign currencies’ markets. Western buyers will most likely need to go via the Bank of Russia to make their payments, essentially undercutting sanctions against the Russian central bank.

It is true, as we stated yesterday, that there aren’t enough roubles circulating outside Russia for non-Russian banks to be able to buy enough roubles to tender as payment (except at most on behalf of very small buyers).

However, the sanctions were designed to allow commodity payments to continue to be made; that’s why only some Russian banks were booted off SWIFT.

There is no reason for any gas buyer to deal directly with Russia’s central bank. They can open an account with a non-sanctioned Russian bank, make payments in euros or roubles, and have the bank buy roubles for them.

The only way a Western institution would deal with the Bank of Russia would be if a Western bank, on behalf of its gas customer, were to go to the Bank of Russia to make the currency exchange. Unless that bank has previously had a clearing account with the Bank of Russia, this would be a non-starter independent of the sanctions, plus we see no reason for a Western bank to stick its neck out this way. Gas buyers who want to deal with Russia will need to open accounts with non-sanctioned Russian banks, if they don’t have them already.

Having said that, it is possible that Russia will offer buyers a central bank account for those who want to avail themselves of it, just to make a point.

As far as which countries are willing to pay in roubles, so far we have only snippets of response. As far as we can tell from the English language press:

Poland and Italy have said no

South Korea will comply

Japan is doing Japanese discretion, feigning confusion, which given the lack of details from Russia, is not unreasonable. But Japan is almost certainly going to want to see how key players respond before it decides what to do.

Germany has said no and German gas companies are signaling high levels of anxiety

Slovenia said no

Some readers have wondered operationally how Gazprom and any other Russian gas pipeline providers could shut off supply to particular countries. I have not yet seen anyone get into the weeds, but I assume that pipeline operators have to be able to shut off sections of pipe, if nothing else to deal with leaks and for maintenance. So the question seems to be if shutoffs can be done an a granular (utility buyer) or country basis.

The Economic Times of India helpfully provided a currency breakdown:

According to Gazprom, 58% of its sales of natural gas to Europe and other countries as of Jan. 27 were settled in euros. U.S. dollars accounted for about 39% of gross sales and sterling around 3%.

Western officials loudly cried foul, saying Russia was not allowed to break its contracts. For instance, from Radio Free Europe:

“This would be a unilateral decision and a clear breach of contract, and it would be an attempt to circumvent the sanctions,” European Commission President Ursula von der Leyen said at the start of an EU summit in Brussels on March 24….

“This is basically a breach of contract, this is important to understand,” Italian Prime Minister Mario Draghi said of Putin’s move.

It’s remarkable but also predictable that no Western leader (save perhaps in South Korea, which is reportedly unhappy with the sanctions) is willing to see Russia’s move as a tit for tat in response for the West effectively stealing $300 billion of Russian central bank assets and the other sanctions. Recall that both Russia and China regard them as illegal since they were not approved by the UN. And no country has ever seized the assets of another except in event of war. And none of the sanctioning countries has declared war with Russia.

Responsible Statecraft was one of the few publications to depict how radical and dangerous the $300 billion asset grab was. Key bits from its must-read article that Lambert also highlighted yesterday in Links

The recent act of “the West” — governments and central bankers in league and in unison — to expropriate what Biden called “Putin’s $630 billion war fund” is really off the charts by way of economic warfare, something that just wasn’t done in the 18th and 19th centuries, even in terrible extremities. Debts were paid, even to cretins. The reputation for trustworthiness was the banker’s most precious asset, and it became the creed of nations. Only by an authoritative legal process, governed by the law of nations, might someone else get their hands on your stash.

In the three centuries before 1914, beginning the age in which all restraints in war, military and economic, were obliterated, such a default was seen in “civilized Europe” as equivalent to the method of “the barbarian” — “we like, we take.” But not only by them. Vigorous shakings of the head in disapproval would also have come from the Princes of Africa, the Sultan of the Turks, the Kings of Persia and China, the Great Mogul of India, the Grand Duke of Moscovy, the Emperor of Ethiopia (Prester John), the rulers of Japan and Morocco, and the Khanate of Crimea. …

The commentariat treats this Vast and Unprecedented Expropriation, this Financial H-Bomb, alongside things like sanctioning Putin’s niece as just parts of a generic class of “sanctions,” as if they were two peas in a pod, when the Central Bank Expropriations are a revolutionary stake into the heart of the global economic system. They will one day be seen as hurtling us to a new monetary order, distinguished across the East-West divide by a rabid neomercantilism, wealth-destroying but inexorable.


Some of the less knee-jerk reactions to Russia changing the payment terms posit that Russia will do additional high-handed things like shorten the term of the contracts or change them from long-term pricing to spot. But pay attention to what Putin said:

I want to emphasize that Russia will definitely continue to supply natural gas in line with the volumes and prices and pricing mechanisms set forth in the existing contracts.

Effectively only two changes are being made are to the payment currency, which since the payment was originally set in Euros, dollars, or sterling, requires setting a foreign currency/rouble conversion rate. As we said, here is where Russia could be additionally difficult by setting an above-market price. Then this scheme would be seen as an brute force way to support the rouble.

However, Russia could also accept the buyers simply making their exact same old Euro/dollar/sterling payments as stipulated in their agreements, but effectively add a rider requiring the deposit be made in one of a short list of Russian financial institutions, and that the institution be instructed to exchange the payment into roubles. This would leave the existing contracts almost entirely untouched and could not be construed as forcing buyers to pay more or reopen other contract terms.

A way to be not nice but arguably still preserve the existing contract terms would be, for long-term contracts, to use the foreign currency to rouble rate in effect when the deal was inked. That would almost certainly be higher than the current level. My assumption is Russia’s intent is not to be punitive but also not to allow itself to be screwed again. But we’ll know more when Russia presents its payment scheme, presumably next week.

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  1. begob

    Any insight on the non-declaration of war? The Russian position is that the invasion is a special operation justified under Art.51 of the UN Charter. NATO members seem to be in the consultation stage under their Art.4. What’s Ukraine’s position?

    1. Yves Smith Post author

      Scott Ritter is the go-to guy on the NATO matters. Ritter has long said Article 4 is the provision that leads to troops being sent off, not Article 5. Article 4 was used to dispatch NATO forces to Afghanistan….as if Afghanistan has anything to do with the security of the North Atlantic.

      Most people consider violating the integrity of national borders and killing soldiers in another nation’s army to amount to war. But oddly on a quick search I do not see any links showing that Ukraine declared war on Russia in response to Russia’s invasion.

      The evidence continues to support the notion that Russia does not want to control Ukraine territory beyond what is needed to demilitarize and denazify Ukraine and obtain assurances of neutrality. It will want assurances regarding Crimea. It will probably will call for referenda in Donbass (which includes Mariupol) which would almost certainly lead to them either being federations in Ukraine with substantial autonomy or joining Russia. Russia is likely to want a naval base in Mariupol and might want a naval base in Odessa and military one on the east of the Dnieper near Kiev. I still believe Russia’s intent is to leave once it has accomplished its aims, but it will want some goodies so it can monitor that Ukraine remains neutral.

      But the intent of the West is to get Russia mired. So we’ll see who prevails.

      1. Polar Socialist

        Two weeks ago Peskov said that “they [=Ukraine] need to recognize that Donetsk and Lugansk are independent states” as a condition for truce. So any referendum in Donbass is likely to be about them being federated to Russia.

        1. The Rev Kev

          They may not need to. Both Abkhazia and South Ossetia both became independent of Georgia after the 2008 war with Russian bases set up to secure their independence. But maybe the Donetsk People’s Republic and the Luhansk People’s Republic will stay independent so that they can ally themselves with other Ukrainian Oblasts which have a majority of Russian-speakers and protect them with their armies. Yeah, some will dispute the ‘independent’ part but realistically the same could be said of the five US territories of American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands.

          1. Sibiryak

            … maybe the Donetsk People’s Republic and the Luhansk People’s Republic will stay independent so that they can ally themselves with other Ukrainian Oblasts

            I agree with this. One thing for sure, they will never be part of Ukraine again. Too much blood spilt. The autonomy-within-Ukraine idea is dead as a doornail.

            Everyone here is right to focus on Russia’s stated goals: demilitarization and denazification.

            But let’s not forget what Putin said in his Feb. 21 speech: “We are ready to show what real decommunization would mean for Ukraine.

            Decommunization means dismembering Ukraine.

            If Zelensky/US turn out to be agreement incapable, as they appear to be now, then the decommunization option may come into play. Time will tell.

              1. Polar Socialist

                According to the article she’s referring to the now dead Minsk Accords having been the chance to save Ukraine as it was.

                I’ve been trying to ignore talks about division of Ukraine, but too many commentators in the east and west are bringing it up to not take it seriously. I even saw an image allegedly from Polish TV which showed Ukraine as a stub around Kiev, while the rest was shared between Belarus, Poland, Hungary, Romania and Russia.

            1. NotTimothyGeithner

              Not that I watch the msm very often, but did Zelensky drop off the planet over the last few days since the WH announced Biden was going to Brussels? The guy was everywhere, but I suppose the declining approval ratings for Western politicians was becoming problematic especially with Ukraine dismemberment coming up.

              1. Susan the other

                It is very hard to believe that a guy as shrewd as Zelensky could actually believe Ukraine could defeat the Russians. I mean, really. The newest theater of the absurd (but amazingly brutal) war is that “there are dark forces organizing to assassinate Zelensky” (in HuffPo this morning, coming from the UK). OK. We know the Banderites will be accused. But we also know that the UK, the US, Israel, Poland and even Germany have all given aid to the Banderites. So does this mean that possibly the Banderites will be wiped out or escape as refugees, but Black Water will remain in the shadows? Whatever. Maybe we will have a prime time real-time adventure as Zelensky is dramatically rescued and flown out to some sanctuary.

                1. NotTimothyGeithner

                  My suspicion is promises were made by “diplomats” in the West before anyone bothered to ask the Pentagon about logistics or capabilities. Zelensky might be shrewd, but bright lights are a problem for anyone.

                  He probably bought the hype about the F35 without bothering to learn where planes actually were.

                  1. lance ringquist

                    the idiot sitting in jail now in georgia actually thought georgia could defeat the russians, bush the idiot told him he could.

                  2. Scorpion

                    He’s a TV star fronted by oligarchs and CIA. He’s a puppet. Doesn’t matter in the slightest what he thought or didn’t think or thinks today.

                  1. tindrum

                    The “silly-ass” Russians spent quite a long time in Afghanistan so I am fairly sure that they will do their very best to avoid a repeat of that experience. Sorry to dissapoint.

                2. Scorpion

                  The Banderites were sponsored by combination of CIA and Jewish oligarch. They are often described as some sort of bizarre combination of anti-Russian and white nationalists.

                  I suspect they are just thugs used by governments to do necessary dirty work – like many of the cartels in Mexico or Intelligence agencies in US. How much the members believe their dogma would be interesting to know but ultimately it doesn’t matter: the true believers are sacrificial pawns when things go pear-shaped (as they have done in Mariupol of late) and probably the leaders get saved somehow and relocated.

                  Zelensky used to produce and star in a show called ‘Servant of the People’ which was funded by the same Jewish oligarch who funded many of the ‘nationalist’ or ‘nazi’ groups. He is a performer – like too many Presidents these days. So what he says is only interesting in that it presumably reflects what those running him want to be heard.

                  Basically, Ukraine is a puppet state beholden to the Empire of Lies.

                  The only kill shot thus far uttered in this war was that one by Putin. It’s spot on.

      2. Mr. Magoo

        I really don’t see how Russia could expect military bases anywhere in Ukraine. Whether sanctioned by any government, a long-lasting insurrection is pretty much guaranteed at this point.

        At this point, I don’t think anyone needs to intend to mire Russia in Ukraine. It is pretty much guaranteed.

        1. OnceWereVirologist

          You should probably stop to consider if the spate of stories on the theme “Russia has already lost, because the invasion has forged a new and unbreakable Ukrainian spirit” are as full of sh*t as those on the theme “Russia deliberately genociding civilians” and “Russian Army to collapse any day now”.

        2. Polar Socialist

          Indeed. Today’s news is that Russia has started paying the pensioners and officials in occupied areas (excluding Donetsk and Luhansk) while restoring the utility services destroyed by withdrawing Ukrainians. I can see how that can incite hatred.

          They also keep shooting down the cluster munitions the Ukrainians keep lobbing on the civilians of occupied areas. Unless the pictures of downed Tochkas are all propaganda and fakes.

          1. The Rev Kev

            Re not paying pensioners in Donetsk and Luhansk. When the Ukraine was shutting down pensions for the people in the Donbass back in 2015, the Russians let any person there apply for a Russian passport. It may be that this being the case, that this would make them qualified to receive pensions as they were citizens now.

            And you are right about those Ukrainian Tochkas whose only purpose is to kill yet more civilians while they still can. Here is video of one such attack about three days ago on Patrick Lancaster’s channel. Some would call that a war crime but not the ICC-

   (1:18 mins)

          2. OnceWereVirologist

            I also saw they had a military unit deployed removing mines set by the Ukrainian Army from farmer’s fields.

        3. NotTimothyGeithner

          The kind of mire Western propagandists are predicting more so promising to explain the defeat but not really planning for (sending mercs too early, along with weapons that can be destroyed, they need bomb makers, and small drones not junk pulled out of storage) will still take months to smaller up. This isn’t a distant land at the edge of empire either. It’s an 11 hour drive to Moscow. Major Russian bases are near by. All eyes are on the region.

          The Russians have to withdraw. I don’t know how much territory they will grab, but the current urban fighting is meant to keep the Azov types from becoming guerrillas while they know where they are.

          The Russians can largely withdraw to safe zones, and they don’t have to worry about supply lines. It’s not like trying to supply Kandahar. The landscape is at play too. It’s not rough country where people can simply hide out except out in Poland. The rest of the untouched area is flat, but the locals in the untouched areas are significantly less pro-Russian. The best hiding spots are in the separatists republics where the locals aren’t likely to provide support for would be guerillas. Maps are amazing. They explain everything. Why a no fly zone is idiotic even if nukes and hypersonic missiles weren’t in play.

        4. WJ

          Given that the eastern part of Ukraine is dominated by people who self-identity, ethnically, as Russian, and who in large part were very unhappy with the post-coup 2014 Ukraine (not to say they were particularly happy with pre 2014 Ukraine either, of course), and who have been accustomed to the imposition of civic leaders coming from the western part of Ukraine with strong nationalist tendencies–tendencies which are not shared, for the most part, with native inhabitants of the region–given all this, I do not think it at all follows, necessarily, that Russian bases located in cities in the east and south east of Ukraine would provoke an insurrection.

      3. Sibiryak

        On the subject of denazification:

        I was watching Время Покажет (pro-government political analysis show) today, and one of the themes was the need for a long-term reconstruction effort in Mariupol. One analyst said it was critical to assure the residents that the Russians were there to stay.

        Then the subject turned to denazification. Everyone agreed that it was going to be an enormous, complicated, multi-faceted undertaking; one person compared it to the decades-long process of denazifying post-WWII Germany.

      4. GM

        It’s hard to see how this ends without annexation of most of Ukraine.

        If they “denazify” and leave, what they will get is an even more militantly anti-Russian Ukraine, still right at their border, and still in one of the worst possible from a Russian perspective geostrategic locations. We’re not even talking about missile flight paths, just as those tanks rolled right into Ukraine, because of how indefensible this terrain is, they can roll straight into Russia in the reverse direction too. The difference is that if in 1941 the German tanks had to go traverse 1500 and 2500 km to get to Moscow and Stalingrad/Volgograd respectively, now it’s 700-800 km from Kharkiv in each of those directions. So what did not succeed back then becomes much easier now.

        And there will be no easing of sanctions and economic warfare regardless of whether the Russians pull out, for many many years.

        So overall leaving Ukraine would only be a net loss.

        This is one of those situations where if you say “A” you must be ready to also go all the way to “Z”.

        Which in this case means Ukraine ceasing to exist except for Galicia and Volhynia and then who knows where exactly the border will be, perhaps somewhere close to the 1914 borders, perhaps the Polish are foolish enough to take the western portions and then there is no Ukraine at all. But you must take Kiev too, so that whatever rump state remains in the west is truly decapitated. And you incorporate Ukraine not as one single administrative unit, but oblast by oblast, each as a new federal subject, so that nobody ever gets any separatists ideas encompassing the whole territory.

        Then you spend decades of very serious effort to de-Ukrainize and reabsorb it into Russia. We will see if it will work, but if the decades spent on building it up on anti-Russian basis were so successful, one should be able to do the reverse too, especially if the region becomes more economically prosperous than it has been the last 30 years. It’s often forgotten that Ukraine was one of the most devastated by its collapse areas of the USSR — there was never all that much going on in terms of advanced civilization in places like Tajikistan but Ukraine used to be probably the most developed republic, and what it was turned into was just heartbreaking.

        The separation from the West should help a lot economically — it has been a one-way transfer of real wealth for more than 30 years now, and the only time that part of the world was truly headed in the right direction was when it was completely close from the West in the middle of the 20th century.

        We will see what happens, but while I didn’t think they would start an all-out invasion until the last moment, once it started then very little but truly maximalist goals behind it would make sense.

        1. Susan the other

          Just thinking about “the prize” here, and a loyal friend. It makes sense that Russia does some sort of DMZ all the way to and including the Dnieper river and all the Black Sea ports. Then the pipeline that traverses eastern Ukraine goes through secured territory (by treaty) and also better to send it through Byelorus than Romania or Hungary, etc. Poland is totally out of the question, right?

          1. c_heale

            I also think that a dmz or wall is a logical solution to Russia’s problems with a hostile Western Ukraine. At least the plants and animals will be able to live in peace in that region.

          2. GM

            This isn’t about pipelines and gas.

            I see that mistake being made by a lot of people in the West. Apparently they can only think in such superficial materialistic and commercial terms.

            But this war is much much bigger than that.

            Look at the map, preferably a topographic one.

            One of the most critical points of Russian territory is the one immediately to the east of Ukraine — you cut that off and you have severed their access to the Black Sean, the Caucasus, and the Caspian and you have a wide open lane for attack towards Siberia south of the Urals.

            This is what the Germans tried to do in 1942 and it’s the reason a million people died at Stalingrad.

            When Ukraine (and Belarus) was part of the USSR, that provided a 1500-km buffer for any such attack.

            And again, that played a crucial role in the war — the German plan was to secure everything west of the Urals by the end of 1941. Didn’t work out because it turned out that vast distances matter a lot even for mechanized warfare.

            Also, after the war the border was actually anchored at the Carpathian mountains (it’s probably one reason Stalin wanted those western regions so bad) and wasn’t only an open plane anymore, plus there were the additional buffers of the other Eastern Bloc countries in between the USSR and NATO.

            But what happens if you give a potential invader a 1500 km head start with modern equipment?

            And that is only if we consider traditional land-based warfare.

            But we live in a world of cruise missiles, and it is 5 minutes from one to fly from Kharkov to Moscow, if you flood the airspace with such missiles, even the sophisticated Russian air defenses will not be able to stop them all. So the decapitation strike becomes very hard to defend against.

            This is why Putin was talking about how “they have created security risks we cannot accept”.

            On top of that, one has to consider that the Russians do see themselves, Belarusians and Ukrainians as part of the same larger nation, not as separate entities. And the Ukrainians in particular are a very large component of that larger Russian nation — about a quarter of it.

            To have that turned militantly against you is a gigantic historic defeat and simply cannot be allowed.

            Gas pipelines are a very minor consideration in that much grander military and historical context.

            1. Susan the other

              Yes, this is a good summary. I agree with your history. But, in the panic over global warming and the EU running on LNG (which won’t be enough) and now what looks to me to be a failed 20-year attempt by NATO to gain control of Mid East oil, this latest aggression in Ukraine has been turned into one more fight to get control of more oil. I think this is a fact – but nobody’s calling it blood for oil yet.

              1. tindrum

                I am fairly sure that the fields of wheat in the Ukraine will turn out to be more important that the oil.

        2. tindrum

          Remember that the EU is on the other side of the border – there is no way that Poland will want Russia on its border so it is failry easy to see that Ukraine will be partitioned. The Russians would be happy with that result.

      5. David

        I’m not sure why Ritter is so fixated on Art 4. It’s just a consultation mechanism, which falls somewhat short of Art 5. It’s designed to provide a forum for members to raise security concerns for discussion, that’s all.
        Don’t forget that as the NATO treaty itself acknowledges the UN Charter ranks above all other treaties and agreements and the treaty cannot give rights or allow action against the charter. Art 4 is, at most, a political cover for states that are uncomfortable acting outside a treaty framework. That’s how it was used to persuade the Germans to go to Afghanistan. But that’s all.

        1. eg

          I would guess because it is #4 that has been used to “justify” offensive NATO action in a way that #5 cannot?

        2. Yves Smith Post author

          You need to listen to Ritter. Article 4 has been repeatedly used to send NATO troops into theaters that have nothing to do with NATO,

          These aren’t the best by him on this topic but are the ones I could find quickly

          See here at 54:00

          See here at 2:05:00

          Ritter argued in an earlier vid that Russia elevating its nuclear alert status was in response to NATO invoking Article 4 after the invasion.

          1. David

            Yes indeed. But Art 4 is political cover inside the alliance. It doesn’t and can’t provide any legal authority in itself. It just makes some countries feel better.

    2. OnceWereVirologist

      “My fellow citizens, at this hour American and coalition forces are in the early stages of military operations to disarm Iraq, to free its people and to defend the world from grave danger.”

      It’s not a war, it’s military operation “Iraqi Freedom”. Same principle. Avoidance of the word “war” for legal and public relations purposes.

        1. OnceWereVirologist

          In Russia, too, I believe there are legal niceties that benefit the executive by calling it a “special operation” rather than a “war”.

          1. Polar Socialist

            One that springs to mind is that during war the armed forces are required to provide actual numbers of casualties and other information in time to the oversight. Not so during a “special operation”.

            I’m sure there are other reasons, too.

          2. Yves Smith Post author

            Recall it was the Russian Parliament that passed the resolution authorizing the recognition of the two breakaway republics on February 16, the day after Zelensky repudiated the Minsk Protocol. A post from openDemocracy before the Feb 22 Putin speech said it was BS, that anything serious started with Putin and this clearly was not initiated by him, so it was a handwave. But in fact this shows that there was widespread support in Russia for Doing Something.

          3. Paradan

            Isn’t there something in the UN charter(?) that state it’s illegal for nations to declare war on one another? Military Operations can only be initiated with consent of the Security Council?

            and yeah I know, but were exceptional…

            1. NotTimothyGeithner

              The UN is not a government. Mostly it’s cute or a platform for meeting , but this is about it. Trust is the bedrock in international relations. The UN might help build trust. Bill Clinton was using it as a profiteering platform, but let’s not pretend, it’s a grand institution. There hasn’t been a constitutional convention to award it authority unlike the EU and its members states or the former colonies in the US.

              One problem is declarations of war exist between legitimate entities. You don’t declare war on pirates. They are pirates. With looming elections, the 2014 coup followed by warfare instead of a constitutional convention made “Ukraine” no more and less legitimate than the future separatist republics as they didn’t upend the long established constitutional order. This is a read between the lines agreement of the Minsk agreement. The Kiev authorities by not adhering remained pirates as the duration was short and under active conflict.

              1. Sibiryak

                The UN is not a government. Mostly it’s cute or a platform for meeting , but this is about it.

                The UNSC can establish peacekeeping operations, enact international sanctions, and authorize military action.

                1. Polar Socialist

                  There was a time when only UNSC could enact international sanctions, but we live in a rule based world now.

                2. tindrum

                  lets be clear – the USA owns the UN and the IMF and the World Bank and any other supra-national institution you care to name, and any actions that these organisations take are only and always in the interest of the USA.

            2. lance ringquist



              “Clinton, Albright, and NATO reached for the old, unreliable one: Send in the bombers. They didn’t bother themselves with international law. They flouted it. International law clearly states that one country can attack another one only when it is itself under attack, about to be attacked, or when the U.N. Security Council grants permission. Belgrade was not attacking the United States or any of the NATO countries involved in the bombings. And the United States intentionally avoided the Security Council because Russia and China were likely to veto any military action. “…

              are you sick of the endless wars? they can be traced to one person, and one person only, the man who single handily destroyed the u.n. mission to protect sovereignty, he broke international law, is a war criminal, bill clinton. today we are involved in so many wars, have so many military bases around the world, its mind boggling. anyone who would vote for these monsters again, needs their heads examined.



              bill clintons globalism could never work, like all globalist, his globalism relies on military and police force, slave, forced, and sweatshop labor, and almost all wealth and power goes into the hands of the few.



        2. digi_owl

          I think it was less about the specific legal principles in each nation, but about throwing the wests words back in their face. Sadly western politics have never been much for self reflection, usually dismissing such attempts as whataboutism.

          I’m not quite sure where i heard about it, maybe it was during a Oilver Stone documentary or similar, but supposedly Russians are sticklers for reciprocity.

          So it may well be Putin’s way of saying “We allowed you to get away with that, so you should damn well allow us to get away with this!”.

  2. Kemerd

    Putin is very careful about how just an action is. My take is that they will insist on an exchange rate that was closer to pre-invasion, this is after all what sanctions have caused

  3. Dean

    Unrelated questions but

    1) prior to expropriating $300b from Russia, what was the previous largest ‘freezing’ of another nation’s currency or gold reserves?

    2) Is there any chance this $300b could be used as a negotiation point in the future? Or will these funds be given away in the next round of corporate welfare spending bills? Or just sit in stasis?

    1. Thuto

      Re: your second question, it will probably go to some “operation rebuild Ukraine” where the local oligarchs and their western counterparts will divvy up the spoils.

      1. FELIX_47

        How about to the 9-11 victims…the small subset represented by the Havish group that is benefitting from the Afghan funds?

        1. Paradan

          They could give it to Rubio and other Cuban “refugees”, since the Soviet Union was allied with evil Cuban Commies that unjustly violated sacred property rites.

          1. Permanent Sceptic

            In terms of the second question, my understanding is that frozen assets can be returned at some point.

            For example, I read that Iran might get access to its assets, which were frozen under the Trump administration after it pulled out of the Iran nuclear deal, through an unusual channel.


            The value of Iranian assets has been contested as some have been frozen since 1979, and valuations include interest and are a subject of negotiations. From 2015, but relevant to the issue:


            1. Yves Smith Post author

              Responsible Statecraft and others contend that Russia will not get its assets back, since despite dangling the hope before Iran, no country has ever gotten frozen assets back. And with respect to Russia, please tell me the basis for returning assets. The move was undertaken to punish Russia for invading Ukraine. The fact of the invasion cannot be reversed. The West has articulated no threshold for returning the assets, signaling their intent not to. Yesterday and today the US added additional sanctions, the latest summarized here:

              1. The Rev Kev

                There might possibly be a precedent here to follow. A few days Nazanin Zaghari-Ratcliffe returned to the UK after being detained by the Iranians for the past few years. And this was connected to the ‘UK’s payment of the £393.8 million debt related to the unfulfilled arms deal in the 1970s.’ Also, ‘In January 2016, the United States refunded Iran $400 million for undelivered military equipment which was associated with the release of four Iranian-Americans’. The only thing is that these were swaps of the payment of old debts in return for hostages so may not be relevant to seized assets like with the Russians here-


        2. tindrum

          Afghanistan had absolutely nothing to do with 9-11, so the theft of that countries monies and the subsequent starvation of the population is an appaling crime.

    2. Yves Smith Post author

      Normally abandoned funds are escheated to the state, so they will probably eventually and quietly be transferred to the governments where the various banks that hold them are chartered.

    3. Acacia

      Maybe not the largest, but the first that comes to mind would be the UK Supreme Court grabbing $1.95bn (£1.4bn) of Venezuelan gold stored in the Bank of England.

      Almost chump change compared to $300b.

      1. Skip Intro

        IIRC some Libyan assets were confiscated after they were falsely blamed for a plane bombing over Lockerbie. And Iran…

        1. Wukchumni

          Everybody pales in comparison to the Nazis…

          In early 1933 as FDR raised the spot price of gold from $20 to $35, Wall*Street did a major arbitrage play on the larger denominations of USA gold coins, primarily $10 Eagles & $20 Double Eagles which contained roughly 1/2 oz and 1 oz in content, all of the sudden for a lucky few well connected financial insiders exporting them to France or some other about to be occupied country in the 40’s, here was a crack you could clear over 60% on your investment without breathing hard.

          $35 wasn’t just the value only in the USA, but the entire world.

          As a result, pre-1933 Eagles and Double Eagles have always largely come out of Europe since WW2, back to the USA-a good many of them having been once the domain of the 3rd Reich for a brief spell.

    4. eg

      I thought that the first time the “freeze” was used was against Iran many, many years ago? Or at least that was my interpretation of something Hudson said about weaponizing foreign $USD reserves.

      1. Acacia

        It looks like Iran was designated a “State Sponsor of Terrorism” in 1984, and two subsequent EOs were issued to block their assets in 2012 and 2019.

        There’s a handy table of “Blocked Funds in the United States Relating to State Sponsors of Terrorism” on p. 15 of the Treasury’s 2020 “Terrorist Assets Report“, which gives the breakdown for Iran, Syria, and North Korea.

        However, the sums are minuscule compared to the grab of Russian assets.

  4. The Rev Kev

    Been thinking about this whole business about these sanctions and counter-sanctions and I can draw a few conclusions. The west has mostly fired their big guns as far as sanctions are concerned. But the West stealing $300 billion of Russian central bank assets was a spectacular own goal which will cause an irrevocable rift in the global economy. That Gonzalo Lira said that the US and the UK never even did that to German assets on deposit at the outbreak of WW2. So here is the thing. As far as I can see, it is Russia that has the initiative and control of the timing now – not the west who can only react. So Putin demanded payment in Roubles for gas but if I understand what Yves wrote here, he did not push them off a cliff but left them a ledge to step back on i.e. Setting up an account in Russia, depositing the money in Euros, and have that bank transfer its Roubles to the Central Bank. So obviously Russia is playing the long game here and you know what they say about that – ‘Beware the fury of a patient man.’

    But you know what we really need here? A Dashboard. No wait – two dashboards. On one would be a list of vital Russian/Ukrainian exports and how many days they have until they run out. So you may be talking about gas, neon, wheat, titanium, etc. The second dashboard needed would be about when contracts with Russia run out. The gas contract for Bulgaria ran out a coupla days ago and they said that they aren’t buying more gas. Other countries may have not much of a choice, Germany in particular. That might be one to watch out for as those contracts end to see who is going to depend on the spot market and who is going to renegotiate a contract with Russia. Provided Washington lets them, that is. But from what I can see, Europe is going to be a train-wreck which will suit Washington just fine as that will mean less competition on the world market.

    1. NotTimothyGeithner

      I wonder how Chinese property owners in places like North Carolina’s Triangle feel. Not that clearing out foreign, absentee ownership wouldn’t be a net good, but the West’s tantrums are going to have affects in places dullards in DC can’t imagine.

      1. PlutoniumKun

        I believe there is already evidence that hot property money has diverted to cities like Tel Aviv and UAE. I don’t think it will end Chinese money flows to the anglophone world, but it will make many investors think twice.

    2. Susan the other

      For the EU, especially Germany, to pretend that they are never buying any more Russian gas is a joke. They are only posturing right now because Spring is here and Summer will carry them through to October when their teeth begin to chatter again. So the EU is buying time. There’s just no other option in the end. Russian gas is it. And, as luck would have it, it could take that long to settle up and get a new pipeline installed.

    3. voislav

      I can report that neon is already impossible to purchase. My US company manufactures instruments that use neon and gas suppliers are now refusing neon orders. They say they will honor orders that were placed prior to March 15, but they are not accepting any new orders. We hear the same from our customers in Europe.

      1. The Rev Kev

        Now that is a major inflection point that. This is not ‘only-available-at-sky-high-prices’ but ‘not-available-at-any-price’. I wonder what comes next? Sorry to hear about your company getting a hit like that though.

  5. Sibiryak

    Great work, Yves! Really cuts through all the confused and inaccurate reporting on this issue.

    With the EU apparently saying “no way” to Putin’s demands [“We will not allow our sanctions to be circumvented. The time when energy could be used to blackmail us is over,” –von der Leyen], it’s going to be really interesting to see how this plays out.

    1. Thuto

      We will burn the village (Europe) to save our sanctions” Von Der Leyen. The vacuity of the western political mainstream is such that playing to the gallery and tough posturing are now the only weapons left in their arsenal.

      1. PlutoniumKun

        Originally, I didn’t think it would take more than a week or two for it to sink in with European capitals that major sanctions on Russia carried an unsustainable cost and for the first backsliding to appear. I’m genuinely surprised they’ve held the line so long, although this may be aided by the size of the hole they’ve dug themselves and the relatively healthy European economy at the moment. I’d also not underestimate the depth of dislike and distrust of Russians in Central Europe, especially in the Protestant lands.

        But I don’t see them being able to keep this up for long, the prospect of energy rationing and industry shut downs (not to mention collapsing property markets) will be intolerable, especially for those countries not on the frontline (such as France, Spain, the Netherlands).

        1. The Rev Kev

          ‘I’d also not underestimate the depth of dislike and distrust of Russians in Central Europe, especially in the Protestant lands.’

          You can say that again. The Polish PM just had a go at Germany, Austria, and Hungary and accused them as acting as ‘brakes’ for new sanctions-

          Russia should tell Poland that if they don’t wake up to themselves, that they will hand Galicia back to Poland when the campaign ends.

            1. The Rev Kev

              Gaach! You’re right. I had forgotten that Poland is a Catholic country. Hoist on my own petard!

              1. Paleobotanist

                Poland did go fairly Protestant in the Reformation. It was a major site of the efforts of the Jesuits during the Counter-Reformation to turn it back Catholic. Does this count? ;^)

                Sorry to nitpick, but I can’t resist….

                I agree that it’s hard to imagine a Protestant Poland.

            2. Ellery O'Farrell

              You’re right, of course: they’re not Protestant. But they’re *Roman* Catholic, while Russia is not only Greek/Russian Orthodox but also a traditional enemy and former taker of Polish territory. The theological differences are quite small, but the governing hierarchies structures are miles apart–which is what matters in practice. And they have long memories. (I know that most Catholics don’t hate the Orthodox, and that few on either side could explain the doctriinal differences–in fact, they’re minor enough that Catholics are allowed to participate in Orthodox ceremonies (not sure if it works the other way around)–but it’s quite clear to both sides that the head of the Catholic church is the Pope/Bishop of Rome and the head of the Orthodox church, though it’s less centralized, is the Ecumenical Patriarch of Constantinople or, in this case, arguably the autonomous Patriarch of Moscow and all Rus’ and primate of the Russian Orthodox Church. IOW, different people, somewhat like High Church Anglicans vs. Roman Catholics.)

        2. Thuto

          With her grandstanding, Von der leyen is fashioning herself to be the Comical Ali of this war, detached from reality to the point of being laughable. These people are incapable of admitting fault, so possessed are they by their belief that they’re God’s finest creation that crowds will be picketing in the streets of Europe because of rationing and energy shortages and they’ll still be doubling down. If any backsliding is to occur, I expect it to be via backchannels with the Russians rather than public admission, and the msm will be instructed to characterize it as a Putin capitulation to some “demand” of theirs

          1. Ignacio

            Comical. I wish she was just comical.
            These days they are discussing in the EU about power energy pricing and it seems there is a divide which might come increasingly problematic. There are the defenders of ‘free markets’ (Netherlands and Germany) against institutional caps on energy prices and a growing discomfort in some many others. OK this is simplystic but more or less holds.
            Unity in the EU should not be considered a given, IMO. Now you can see that interconnectedness apart from being quite an interesting tool to better manage power energy is might turn to another ring to rule them all.

            1. Tom Bradford

              While I would have voted against Brexit had I still lived there at the time, the current cutting off of noses to spite faces and holding hands on the cliff-top to encourage the slackers by an inept leadership of the EU charging like the Light Brigade against the Russians (to mix the metaphors), makes me wonder if Brexit wasn’t a justifiable move at least in principle – although Boris of course is out there in front where the cameras are, bravely waving his toy sword and urging them on..

          2. c_heale

            Wasn’t Von der Leyen seen as incompetent in Germany before she got her current position?

            1. tindrum

              oh yes. A rich woman who spent billions on consultants to tell her how the german armed forces should be organised, and then got the EU position by the skin of her teeth. Bloody awful really.

  6. Acacia

    Regarding Japan, this may have been reported already via linked articles at NC, but Russia’s response to Japanese condemnation of the special operation in Ukraine was to terminate negotiations over the Kuril islands that Japan wants back, and Japanese visitors to the islands will henceforth be required to apply for visas. Russia also terminated negotiations over a peace agreement on WWII.

    As you can imagine, Japan imports lots of LNG, though mostly from Australia and Malaysia. Russian LNG is only about 8% of the total.

    And regarding Zelensky’s speech to the Japanese Diet: afterwards, he was given a standing ovation … which was apparently an order issued by the govt to the legislators. Japanese friend who told me this commented: “sounds like like North Korea, doesn’t it?”

  7. Tom Stone

    I am impressed by the measured response of Russia to the Sanctions.
    They are being very careful not to make new enemies.

    1. tindrum

      I suspect that they are being eminently reasonable whilst planning the demise of the west in the background.

      1. diogenes

        Russians usually are the responsible ones: Cuban missile crisis when Khrushchev backed down. Several near misses when a junior Russian lieutenant did not inform superiors to launch ICBMs when radar malfunction was confused to be US ICBMs on the way to the USSR. Putin has done nothing, until Ukraine, despite US breaking the Bush “not one inch” closer promise to Russia with NATO arms. Aid to Syria to stop ISIS aggression supported by US and Israel. Read Putin’s speech to Davos of a few years back. Could anyone in the US make such a speech? US is responsible for what 500,000 dead Muslims since the US invaded Iraq after Powell told UN of false-flag non-existent nuclear weapons. Russia is responsible for maybe 10,000 dead in Ukraine. Now, just who is acting responsibly? Who is the war criminal?

  8. Altandmain

    Anyone could have seen this was the obvious counter move once the US and other nations froze Russian foreign reserve assets.

    I think that the politicians are either lying when they did not realize this was coming or they are even less competent than even the low standards they had previously set.

    Ironically this could backfire horrendously on the West, and accelerate de-dollarization.

    At this point, it is likely that many of the European nations may be forced to back slide on their sanctions and make concessions. The alternative may be a crisis a lot more closer to home.

    It could mean an energy crisis and perhaps a food crisis as well. More industries will shut and there will be enormous hardship for the general population, which will lead to pushback.

    The ruling class in the Western world badly miscalculated the situation.

    1. Sibiryak

      Dmitry Medvedev:

      They shut down the correspondent accounts for our commercial banks, made settlements in dollars and euros impossible and disconnected the banks on the sanctions list from SWIFT, at least some of them. What did they think we were going to do?”

    2. c_heale

      Biden has already said their will be food shortages. As a non-Usian, he seems like an incredibly stupid politician, even among the current crop of idiots running the world.

  9. atharvaveda

    It’s funny how Scholz and other EU vassals are now calling the Russian demand to be paid in rubles a breach of contract. It was the EU itself which (successfully, because what else would you expect?) a few years back argued in front of international courts that parties are freed from contractual obligations if these come into conflict with sanctions. Russia had made the complaint that European companies reneged on their pre-existing obligations to Russian counterparties, after the sanctions which were introduced in 2014.

    The EU argued, as I recall, that it is the sovereign which forces the party to break the contract, and the sovereign is protected by sovereign immunity. Russia is now banning (or should be) its own companies from accepting payment other than in rubles. It is the exact same situation, only in reverse. Sucks to have your own legal precedent used against you, doesn’t it?

    1. Yves Smith Post author

      Oh, this is VERY important! I had no idea. I will run that down, thanks!

      This is yet more of Russia playing, “What is good for the goose is good for the gander.”

    2. Sibiryak

      Thanks atharvaveda! If you have more details, please post them. I agree with Yves–this is very important.

      1. atharvaveda

        Well, I wish I could find the article now. I can swear I didn’t just dream this, and I’m pretty sure I was able to find the article as recently as a few months ago. Now however it seems that any way I try to search for it, it gets drowned in the noise from the current dispute and the current accusations from the EU. But I will keep searching.

        One clue (that I also tried to pursue just now) is that I am somewhat sure that the particular case involved delivery of Siemens turbines. Maybe that can help others on the search.

        1. The Rev Kev

          If it helps, when you use Google there is an option called ‘Tools.’ When you click on it there is an option called ‘Any time’ and at the bottom of it you will see ‘Custom range..’ So you can set a time period that does not go back too far and excludes all the recent garbage results so it will increase your chances.

          1. atharvaveda

            I may have to walk this back. I’ve searched every way I could think of for about an hour and come up with nothing. Either I still don’t know what exactly to search for, there never was such an article to begin with, or it has been conveniently purged from the internet.

            1. atharvaveda

              The most relevant I’ve been able to find has been this: The Future of Commercial Arbitration with Russian Parties in the World of Sanctions, from 11 Dec 2014


              Existing contracts

              It should be noted at the outset that under EU and US law no sanctioned Russian person or entity or indeed any Russian person or entity can bring a claim on the basis of a breach of contract due to sanctions. Article 11 of Council Regulation (EU) No. 833/2014 of July 2014 (Regulation 833) provides in relevant part:

              No claims in connection with any contract or transaction the performance of which has been affected… including indemnity or any other claim of this type, such as a claim for compensation or a claim under a guarantee… shall be satisfied if they are made by [sanctioned persons/entities, any other Russian person or entity or any person or entity acting through or on behalf of Russian persons or entities whether sanctioned or not].


              Not quite the case/reasoning I remembered but perhaps also useful.

        2. vao

          There was a case several years ago of Russia sending turbines built in Russia by a joint-venture between Siemens and some other Russian engineering firm to Crimea — which was prohibited under EU sanctions enacted after the 2014 events.

          Then it was Siemens which went legally against Russia to avoid being itself accused of complicity in breaching sanctions. I have no idea how the whole affair ended. Is that the case you are thinking of?

          1. atharvaveda

            That is probably the case I am remembering, but if it was that dispute, there must have been some other twist in those proceedings where Russia then in turn made a complaint of non-delivery and breach of contract (I guess of the turbines being delivered to Crimea, which was agreed to before the sanctions).

            Because I distinctly remember Russia making a complaint of breach of contract (and again, it could have actually been about something else than the Siemens turbine contract), and the EU court (or some international arbitration court, I can’t remember where this was settled) ruled that sanctions freed from pre-existing contractual obligations.

            1. Arkady Bogdanov

              I remember their being a dustup over France’s refusal to deliver the aircraft carriers, and I seem to recall that the French had penalties to pay on that one. Not sure if that is relevant, but possibly.

  10. Fazal Majid

    What I don’t understand is that the rouble is not going to appreciate against the dollar or euro (apart from the temporary blip from the announcement), so that depreciation will hurt their future revenues. Wouldn’t it make more sense to demand payment in gold or yuan instead?

    1. Yves Smith Post author

      I don’t understand this comment at all. Russia certainly cannot demand payment in gold. And I cannot fathom the logic of asking for payment in yuan when that is a foreign currency. They might as well put up a sign that they are owned by China when they are a sovereign country with nukes, very powerful non-nuclear missiles, and lots of natural resources.

      1. atharvaveda

        Well, if they can demand payment in ruble, they can demand payment in gold (if they want to). The seller of last resort of rubles is the Central Bank of Russia, and there isn’t (as has been discussed already) that many “excess” rubles floating around, and Russia might not be in the mood to give the West a lot of leeway playing around in their domestic banking system.

        Russia could simply say, look, the CBR is again actively buying gold in the domestic market. This is now the premier mechanism for raising new rubles, at least as far as you hostile countries are concerned. Maybe you should have some of your Western bullion banks (and behind them your central banks, or even the merely pseudo-international BIS and IMF) shipping gold into the Moscow Exchange?

        Once it’s been established that there are no gold plated tungsten bars or any other funny business, the CBR will buy your gold and you get your rubles. Then you can use those rubles to pay for the gas.

        I for one would find this very amusing, but it’s up to Russia obviously if that’s how they want to do it.

        1. George

          Seeing how the only source for rubles is the CBR and once the supply of rubles outside of Russia is exhausted, as in the demand for Russian gas, there will be no more to be had without coming to Russia. Do you see how this beats western sanctions? If you want Russian gas, we will sell it to you but only for things we want, i.e. real goods.
          Another thought briefly, say you exhaust all your external ruble to friendly currency countries exclusively first and then let them impose a bidding war amongst the unfriendly for same ruble? Just saying…

          1. eg

            This is how I understood it — by accepting ONLY roubles in payment for their oil and gas, the Russians force foreign fossil fuel buyers to acquire roubles. Their relative scarcity outside of Russia itself IS the squeeze, forcing foreigners who cannot acquire sufficient roubles to either make real resources available to Russia (presumably undermining the premise of the Western sanctions) or deal with one of the Russian banks.

        2. digi_owl

          I suspect you can in this replace gold with something else that the Russian economy is in desperate need off, like say airplane parts.

  11. Culp Creek Curmudgeon

    Here’s something I don’t understand: How is it that the West can argue that payment for natural gas in rubles is a breach of contract but that the imposition of sanctions is not a breach of contract?

    1. NotTimothyGeithner

      Rules are different for different races. It’s not even realpolitik of any kind. Japan was elevated, so there are exceptions. If it was realpolitik, the West would skip that kind of whining, but too many Western elites can’t conceive of a world where they deal with other countries as equals. They haven’t even conceived the “sub races” might counter. Our lecturing of the largest economy in the world as if the US hasn’t been aggressive towards China since the “pivot to Asia”, knocking over countries at the end of the new Silk Road. We act like they are too stupid to figure this out.

      1. c_heale

        I’m currently watching the HBO series, Exterminate the Brutes. I wouldn’t be at all surprised if the Western elites still thought themselves superior to the Non-Western ‘Brutes’. They’ve been thinking this way for a very long time.

  12. Shom

    While the “payments in rouble” scheme forces the buyers to deal with all the sanctions related headaches at their end, I am not clear how Russia is forcing a new paradigm here. As per this post, wouldn’t Euros/USD/Sterlings still accumulate in a (not-yet-sanctioned) Russian bank? If these currencies are of no use to Russia, aren’t they better off exchanging these for commodities and imports that seem to have stopped now. As I recall, key medicines, auto parts etc. were voluntarily withdrawn from Russia by EU/US companies.

    1. atharvaveda

      I agree, and presumably the edict to accept only rubles is just a mechanism to allow Russia to decide what the West will have to hand over in exchange for the gas they need from Russia. Russia alone has in its hands the power to decide what the West can buy the rubles for. As others have pointed out, not many rubles are sloshing around internatonally anyway, and they are insufficient to pay for the volumes of gas needed by the EU even on a daily basis.

      The central bank will be the only source for the needed rubles, and it can be instructed to buy with these rubles only those medications the West is trying to starve Russia of, or the aircraft spare parts they are withholding in the hope that Russians will have to fly unsafe planes, or Europe’s monetary gold, to be delivered in neat packages in Moscow for careful weighing and assaying.

      1. Shom

        This raises an intriguing possibility to entice EU/US exporters back to selling in Russia: come sell your goods / wares / medicines / parts and earn roubles, which you can then sell to your compatriot energy / oil importers for a small additional premium.

        Aggregate import – export data shows that this will not cover all the roubles needed for oil import into EU, and I’m not even sure how CBR will implement this.

        Nevertheless, we are in for interesting times, the timing of which is largely in Russian hands.

        1. deplorado

          If this works for some time, it could make the ruble very expensive, and consequently imports for Russia cheap, as they would be paying for them with rubles made out of thin air — like the US with the dollar.

          I think the Russian population would love this – on the beaches of Thailand, Turkey, and Vietnam…

      2. eg

        I believe that you have grasped the basic premise correctly here, atharvaveda, which is more than can be said for any Western press analysis that I have seen.

      3. steve2241

        Published on March 13. Apparently, Putin got the memo.

        “Russia has no need for foreign exchange. She does not need to import energy and minerals. Russia is full of engineering and science and can make whatever she needs. The central bank can finance all internal projects. But as the Americans succeeded in brainwashing Russian economists, the Russians can’t use the powerful weapon they have at hand to bring the West to its knees begging for mercy. Moreover, the Russian economists don’t have enough sense to demand payment in rubles for their energy and minerals. This would strengthen their own currency rather than the currencies of their enemies. Why does the Russian central bank forgo the opportunity to use Russia’s exports to stabilize the Russian currency?

        The conclusion is that in the sanctions game the Russians hold all the cards but do not know how to play them.”

        1. Sveno

          I would like to adress some more pieces that try to show how banks can exchange money.
          First the Russian central bank is controlled by Bis in Switcherland. Second paying in Rubel is not the game changer. You can exchange your dollar to rubel and rubel to dollar in some seconds if you have these accounts in a bank. If two countries want to trade with each other they can in simplest way exchange gold. Modern way invent debt. For instance Russia borrow Yuan , China borrow Rubel ..from boths’ central banks. Each countries banks can now lend these money for trade between both countries.
          If i’m not recalling wrong was Saudi more or less forced to store it’s money in us banks. Thats the key to the dollar peg to oil. The only benefit for Russia is that they don’t have to have dollar euro account in a foreign country with the oil money. Now the buyer have to secure rubel. And how does the rubel exist outside russia? As money yes in small amounts , biggest part as debt to the russian central bank.
          Soo when you buy russian oil you buy rubel that a bank have borrowed from the russian central bank. How can russia demand that these rubel that the central bank have lent will be paid?

    2. NN Cassandra

      Yeah, unless they can use these dollars to buy real things, it doesn’t solve much. It’s still Russia sending oil/gas to EU and in return accumulating numbers in computer, only now the computer doesn’t sit in New York/Frankfurt but in Moscow.

      If Russia implements it this way, then AFAIK the only possible upside of this scheme of sending USD/EUR to Russian bank that exchanges it for ruble internally, is to make the change of contract more palatable. “You see, we altered the deal to say ruble instead of dollar, but if you accept it you can still continue sending your dollars, just to a different account number. No biggie.”

      And after EU accepts it, then drop this internal change scheme and demand for their rubles something more tangible than dollars.

      I wonder if West leaders would fall for that one.

      1. George

        I don’t see why not; we aren’t dealing with the sharpest tools in the shed by the way. Only this is the beginning of something more. With this move, Putin basically shot King Dollar in the head. By that I mean USD and Euro for that matter have been exposed as defaulted upon by way of their Russian sanctions (or for that matter all of their many previous sanctions) primarily because Russia has something a world with no spare energy capacity desperately needs. Seriously, if I was wanting to wreck western economies, I would change very little what they already have done.

  13. Wukchumni

    For every Russian over 40 years old, this is the 3rd devaluation of the Ruble over the past 30 years, and kind of yeah whatever compared to the steep learning curve when it took 1,000 of them to equal 1 Dollar, after in theory being worth a buck fifty a year earlier.

    They are old hands at their sovereign currency going off the rails, as is a middle-aged Iranian.

  14. RobertC

    Once again I’m going to walk out on the plank.

    In my RobertC February 18, 2022 at 1:40 pm post I stated.

    Putin and his awesome central bank governor Elvira Nabiullina have prepared Russia for this moment.

    America and Europe haven’t and they’re flailing.

    They are still flailing.

    I also stated

    I believe Putin and Xi gamed out and are executing a confrontation with Biden in Europe, splitting the Atlantic alliance, using Ukraine as their cat’s paw and commodity prices as their lever. And so far everything is moving according to their plans.

    In my RobertC March 13, 2022 at 9:27 pm I stated

    The briefer stated that one of several formal methods the Chinese used was the Analytic Hierarchy Process.

    That briefing was over a decade ago. Since then China has risen to leadership in high performance computing and artificial intelligence applications.

    I’ve been dancing around the essence of my thesis. Now I’ll be explicit.

    China’s and Russia’s military and academic analysts have formally examined (eg, game theory) all aspects of their confrontation with the West using multiple AI applications running on HPCs.

    This allows Putin (with Xi at his side) to anticipate then quickly and assuredly respond to the West’s actions because the “What-Ifs” have already been asked and answered.

    We are in the Next Generation of warfare!

    And our feckless military, hobbled by two decades of fruitless ME conflicts, is unprepared.

    Apologies but if I sound furious about this lack of preparation, I really really am.

    1. c_heale

      I am not as sanguine about Russia having this all gamed out. Wars never go to plan. “Everyone’s got a plan until they get punched in the mouth” Mike Tyson. I don’t think Russia expected the freezing of the assets of the Russian central bank. But I think they may have considered it as an outlying possibility. I think they really expected the USA to at least talk about side issues for a long time and not need to go to war.

      Russia didn’t try to negotiate in Georgia, nor in Kazakhstan, or in Afganistan. They just acted. The attempts at negotiation before the outbreak of war was very unusual imo. I think this illustrates the seriousness with which the Russians view the current situation. And the West also didn’t expect this offer of negotiation. They expected Russia to just invade, which is why they hyped up the possibility of an invasion before it happened. Everyone has found themselves in a unexpected situation.

      On the positive side I think Russia still wants to negotiate. But I don’t think the West (the EU and Russia) is currently agreement capable.

      What has completely shocked me is the blatent expression of anti Russian racism by the Europeans. As a Remainer I was not surprised by the racism of the Brexiteers or the inverse racism of many Remainers, and the fact that I could not have a reasonable dicussion with a Brexiteer around the time of the referendum. However, so many of my UK and other European friends seem to have swallowed the propaganda about Russia bad, that it us difficult to have a discussion with them about this conflict.

      1. tindrum

        The Russians need to tread carefuly as they are trying to get as many countries as they can to move into their sphere. China, India, Paksitan, Venezuela, UAE?, most of Africa…

      2. Sausage Factory

        Lavrov said in an interview on Friday that they did not expect part of their reserves to be stolen/frozen. The Chinese have asserted that a new currency will be launched soon, this will be in concert with EEAU countries to start with, then possibly BRICs. I think this is without doubt Glazyevs influence but they have been working on this for sometime. Its obvious that these are long term plans being executed earlier than expected. It’s going to take time for all of this to work its way through the global system but of course it is a big threat to dollar hegemony. I’d rather be in Russian shoes long term, they have no worries around either energy or food, the west is simply not psychologically equipped to deal with starvation and freezing in their homes, certainly not over Ukraine and its exceptionally corrupt Govt and far right tolerating society. People are blind right now and smothered by an emotional blanket of propaganda and rhetoric, that will not last.

        Ideologically speaking, as the late John Kenneth Galbraith noted, “People of privilege will always risk their complete destruction rather than surrender any material part of their advantage” The plebs are supposed to be the sacrifice for the West.

        1. Acacia

          I’m not sure what to think of this. Western media has taken Lavrov’s comments to mean the Russians were “blindsided” by the move to steal their foreign reserves, but just a few weeks earlier he was saying this:

          Our European, American, British colleagues will not stop and will not calm down until they have exhausted all their possibilities for the so-called ‘punishment of Russia’. They are already threatening us with all manner of sanctions or, as they say now, ‘the mother of all sanctions’. Well, we’re used to it. We know that sanctions will be imposed anyway, in any case. With or without reason.

          So, I’m not convinced that the Russians failed the calculate the risk, because: (1) Lavrov told us they expected “the mother of all” sanctions; (2) the US has been using sanctions against enemies for decades now, and in over 100+ cases since 1945. By the late 90s, over 20 different countries had been subject to sanctions. And (3) Russia has been the target of sanctions more or less continuously since 2014. Certainly the Russians are well aware of all of this.

          I guess we could say that the RF didn’t expect sanctions would be escalated to the level of stealing their foreign reserves, but there’s precedent for that too. The US and UK have frozen the assets of Venezuela, Iran, and the DPRK.

          Finally, the Russians have stated repeatedly that NATO in Ukraine would pose an “existential threat”, which certainly casts the risk of sanctions in a different light, even “the mother of all sanctions”.

          My take is that Lavrov is perhaps dramatizing a bit to make the point that any other country that doesn’t agree with the US could have all of the foreign reserves stolen, and the Western media is riffing on his statement to convey the idea that these sanctions are some unprecedented event, when it fact this has been a consistent part of US foreign policy for at least fifty years now.

    2. Lex

      Thank you, that’s super interesting and explains more than a few of my observations. Other than freezing the reserves, it does seem that Russia-China haven’t been surprised by anything the west has done. Calm, cool and collected like they have a menu of options for responses; which is the exact opposite of the west’s collective response.

      1. Sausage Factory

        Mar. 14, 2022: “In two weeks, China and the Eurasian Economic Union – Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan – will reveal an independent international monetary and financial system. It will be based on a new international currency, calculated from an index of national currencies of the participating countries and international commodity prices”.

        The currency resembles Keynes’ invention Special Drawing Rights.SDRs are a synthetic currency which derives its value from a global, publicly traded basket of currencies and commodities. Immense beyond imaging, and stable as the Pyramids. Everyone gets a seat at the table and a vote. It may eventually be administered by an arm of the UN.

        SDRs pose a serious alternative to the US dollar, both for the EAEU, the BRI’s 145 member states, the Shanghai Cooperation Organization (SCO), ASEAN, and the RCEP. Middle East countries, including Egypt, Iran, Iraq, Syria, Lebanon, are keenly interested.

        Less well known is that the EAEU, the BRI, the SCO, ASEAN, and the RCEP were discussing a merger before the currency news hit.

        It is reasonable to expect them to join this new, cooperatively managed, stable reserve currency regime in which they can settle their trades in stable, neutral, predictable SDRs.

  15. Kimberly

    What it the connection to the now acknowledged as true Hunter Biden Ukraine gas company?

    Russia seems to be making more money than ever now that Biden’s sanctions have raised the price of their energy which they continue to sell everywhere except Europe and North America.

    How did Biden’s company make money and is it still in existence today?

  16. RobertC

    War in Ukraine causes German business morale to collapse

    BERLIN, March 25 (Reuters) – German business morale plummeted in March as companies worried about rising energy prices, driver shortages and the stability of supply chains in the wake of the war in Ukraine, pointing to a possible future recession, a survey showed on Friday.

    The Ifo institute said its business climate index dropped to 90.8 in March from a downwardly revised 98.5 in February. A Reuters poll of analysts had pointed to a March reading of 94.2.

    “The message from Germany’s most important economic barometer is clear: the German economy is very likely to slide into recession,” said Thomas Gitzel, chief economist at VP Bank Group.

  17. eg

    This is the only place I can find any analysis of this move by Russia. I don’t believe that there are very many media outlets with the requisite macroeconomic chops to understand the mechanisms at work, let alone the implications.

  18. The Rev Kev

    I see the following headline – “EU nations band together to buy gas”. It then goes on to say that ‘European Commission President Ursula von der Leyen told reporters on Friday that the European Union will purchase gas on its own and divide it between members, a new development for the 27-member bloc.’ So, divide it between members. How will that be done? By population size? By GDP? By countries vulnerable to cold weather? Will some EU countries be able to swap excess gas for other things? Will there be subsidization? Pass me the popcorn. This is gunna be good-

    1. Acacia

      Pass the popcorn, indeed.

      There’s an interview with Michael Hudson just up on the Saker’s site addressing some of the ways the EU can try to buy Russian natgas. Looks like they are in rather a difficult position, to say the least.

    2. Abs

      My country is famous for sharing and I can tell you this is a disaster. It’s not sustainable.

    3. George

      RK, this is an attempt to silence the three outliers that had the good sense god gave green apples to not go against Russia. Kind of a vote in lockstep incentive or be ostracized. The wealthier countries, that is Germany, will quite handedly outspend its way to the head of the trough.

  19. René

    Zelensky tendrá toda la capacidad negociadora que asiste al perdedor, por ello Occidente debe adoptar una posición común para la negociación de la paz con Rusia y llevar a Zelensky “de la mano” en esas negociaciones, no hacerlo en los próximos días permitirá a Rusia fortalecer el control sobre Ucrania y ser más exigente en la mesa al negociar.
    El tutelaje de Occidente en las negociaciones implica q Rusia reclame poner en la mesa un grupo de sanciones de las más incómodas para ella.
    Sería contraproducente para Europa que Rusia lograra excelente cosecha en Ucrania por sentarse a negociar tardiamente con ella.
    Implica esto un reconocimiento público del error estratégico de las potencias occidentales al estimular o incentivar esta guerra permitiendo al halcón ruso mostrar sus capacidades y habilidades tanto como sus capacidades de adaptación ante una guerra financiera y comercial.
    Rusia se proclama nuevamente luchadora contra el facismo ahora sin ayuda de occidente o increiblemente…gracias a la oportunidad que le brindó occidente en Ucrania.
    ¿se puede visibilizar esta opinión o es un disparate?

    1. Sibiryak

      Implica esto un reconocimiento público del error estratégico de las potencias occidentales al estimular o incentivar esta guerra

      The West doesn’t make public acknowledgements of strategic errors. And in the case of Ukraine, they are doubling down.

      1. René

        Occidente no hará una declaración del error estratégico, no va a flagelarse…el mundo entenderá que “mucho ruido y pocas nueces para occidente” cuña del pastel en el plato ruso

  20. nothing but the truth

    it is one thing to steal Venezuela’s gold, it is another to steal Russian govt’s money.

    It is difficult to see how it is not an act of war.

    Till this issue is resolved, US and Russia cannot talk.

    So unless the US is saying that the break is permanent, this money will have to be returned,

  21. Poul

    What about the real issue of foreign reserves?

    If Russia after the sanctions still have a current account surplus, they would want it to be in Reminbi. Roubles won’t solve that problem.

    1. Yves Smith Post author

      The reserves were stolen because they were in non-Russian banks that implemented the sanctions.

      I’m not sure what the mechanisms allowed will be, but say German utility were to set up a deposit account with a Russian bank, deposits Euros and asks the Russian bank to swap that for roubles. The transaction takes place in Russia since there are no meaningful amounts of roubles outside Russia. Some other Russian financial institution makes the exchange so they wind up with the Euros. That bank can’t have those Euros stolen by the West because it is in Russia.

      The foreign reserves are still useful. Russia is still buying pharmaceuticals, for instance. France has not shut down its businesses in Russia. They may not be as useful to defend the currency but I imagine Russia will be looking for indirect methods to achieve that end.

    1. Yves Smith Post author

      Please don’t present material as definitive (which is what the title implies) when it isn’t.

      This is not an “actual transaction.”. It’s just MMT book entries. It has squat about trade execution, settlement (usually T+2), or when and how trades get busted.

      This sort of thing is much closer to the mark, particularly since from what I have read, Russian oil companies are being required to convert 80% of their foreign currencies to roubles on an exchange in Russia, not OTC:

      Also see:

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