Putin Edict on “Gas for Roubles” Consistent With Original Description (and Our Take); Western Officials Nevertheless Claim a Walkback

Perhaps an allergy to finance, particularly among political leaders and media employees explains the widespread lack of comprehension of what the Russian “unfriendlies pay for gas in roubles” would amount to. Recall that in his original statement, Putin set forth boundary conditions, most importantly that existing pricing mechanisms would stay in place.

I have to keep recycling this clip because the Russian leader made clear from the get-go that the contract terms and economics would stay in place. What was being added was the requirement that the payment be tendered in roubles:

Folks, this is not hard unless you want to make it hard. It’s a mystery why the press went into MEGO (My Eyes Glaze Over) mode. If your going to leave the contract otherwise in place, all that Putin was appending was a requirement to exchange the euro/dollar/sterling amount due into roubles at the time of payment. Theoretically, Putin could have insisted on an above-market exchange rate, but that would conflict with his stipulation that price terms remain unchanged, since that would de facto change euro/dollar/sterling pricing for a new higher price stated in roubles.

We listed a whole set of advantages in our post yesterday that Russia would nevertheless get from a minor-seeming, technical change. The main one was to require gas buyers to tender payments to Russian banks, since only Russian banks could get their hands on enough roubles to execute the foreign exchange transaction (more on an important fine point soon). There aren’t a lot of roubles trading outside Russia. That would prevent the West from sanctioning more Russian banks, something they seemed intent on doing at last week’s series of European summits. It would also mean the foreign currency payments would be in the hands of Russian institutions, and hence not vulnerable to being “frozen,” aka expropriated.

The fact that the West seems willing to go along, and is now incorrectly depicting the Russian detailed explanation as a climbdown, makes it awfully hard for them to object when Russia, as it floated on Wednesday, extends this procedure to other commodities, like oil, lumber, wheat, metals, and fertilizer. That means in having payments from “unfriendly countries” on contracts denominated in their currencies be made to an account at an unsanctioned Russian bank with the customer also effectively ordering the currency exchange to roubles.

One additional advantage of this procedure: it greases the skids for Russia requiring future contracts to be set in rouble terms, not in “unfriendly country currency” terms. Expect Russia to be smart enough not to do this right away. And expect them to do this first on a long-term contract for a must-have commodity. Gas again seems like the prime candidate but another suitable contract expiration might occur at a propitious time.

At the end of this post, we’ve embedded two documents: one, the translation of Interfax’s transcription of Putin’s orders that describe the mechanics. It’s still a bit rough, but still understandable. The second is an official translation of Putin’s speech yesterday, nominally about how Russia is going to build and operate aircraft under sanctions. The opening section is devoted to operation of and rationale for the “roubles for gas” stipulation. Reader Safety First found the Russian text on Interfax. His recap is a lot smoother than the Yandex translation:

– 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.

One change from the process we envisaged at the get-go is that Russia has stipulated one unsanctioned bank, Gazprom Bank, to be the payment recipient, as opposed to having any unsanctioned Russian bank be eligible.

A second fine point is that this process has the gas buyer “owning” the rouble account as well as the initial euro/dollar/sterling account into which the contactually due payment is initially made. So the gas buyer does in the end make payment in roubles because roubles go from his rouble account to Gazprom

The transaction mechanics above also means the payment to Gazprom is net of the foreign exchange transaction costs. Gazprom eats that, not the gas buyer.

Despite the formal statement seeming to make a big deal about setting up the dual currency accounts, this presumably has to do with anti-money-laundering and perhaps other requirements in setting up accounts for foreign entities. The dual currency part isn’t the reason why. Russia has had dual currency accounts for retail customers for years, so that isn’t the hard part.

A third interesting point is the requirement to execute the foreign exchange transaction on the Russian Stock Exchange. Bear in mind that Russian companies that sell oil and gas abroad now are required to convert 80% of their receipts to roubles, again on the Russian Stock Exchange. I am curious as to why Russia is so enamored of having exchange-traded foreign exchange. The norm in the rest of the world is for foreign exchange to be traded over the counter, out of bank treasury departments. One can argue that OTC trading is non-transparent, subject to more chicanery, and unlike one central exchange, cannot assure best execution.

Finally, the timing is fuzzy. Putin maintains that this mechanism is effective as of April 1. But as his statement indicates, it applies to gas shipped starting then. And you can’t demand that buyer jump through impossible hoops. Unless a gas customer happened already to have an account at Gazprom Bank, it’s hard to imagine them being able to set up new accounts in one day. Plus the details of the order give the authorities up to ten days to sort certain details out.

Gas payments under long-term contracts are made periodically, and it appears the first ones are not due until the end of April. Helpfully from another story on Interfax:

The practical implementation of the new procedure for paying for Russian gas supplies to Europe – in rubles – will begin at the end of April-May, a source familiar with the situation on the energy market explained.

The decree of the President of the Russian Federation on paying for gas in rubles applies to deliveries starting from April 1.

“Under some contracts, payments for Aprelsky gaz start in the second half of April, for others-in May,” the source said, answering the question of whether some of the customers will be left without gas as early as April 1.

Ordinarily, one assumes Russia won’t cut off gas unless a payment has actually been missed. But if buyers say “Nyet” before then, would Russia act sooner? So far, Scholz is digging his heels in. Yet another Interfax account:

German Chancellor Olaf Scholz said on Thursday that Germany’s payment for gas from Russia will continue to be made in euros in accordance with existing contracts.”We have reviewed the contracts. They say that the payment is made in euros. In a conversation with the Russian president, I explained to him that this should remain the case, and it will be so, ” Focus quotes him as saying from a press conference with Austrian Chancellor Karl Nehammer.

However, this remark appears to be a reiteration of Scholz’s phone call of the day prior; there’s nothing in it that indicates that he’s been briefed on the Putin decree. And as far as I can tell from a search, Scholz has not said anything since then. So this does not appear yet to be a final position.

This is from the front page of FAZ, above the fold, and you can see the story is fresh as of just after 6 AM EDT:

Google Translate would not give me a translation of this lead story at Die Zeit, and you can see the Yandex translation is not up to snuff. But it gives you an idea:

Guardian depicts the detailed plan as a retreat:

The threat of a gas shutoff was reduced, however, as details emerged about the new deal, which appeared to allow European buyers to continue to pay for gas in euros and dollars.

The decree Putin signed on Thursday authorises the state-controlled Gazprombank to open foreign currency and rouble accounts for gas purchases. European buyers would pay in foreign currency and then authorise Gazprombank to make the conversion into roubles, which would then be used to formally purchase the gas.

The convoluted scheme could allow the Kremlin to save face in its standoff with European governments while averting a potential gas shutoff to Europe over Putin’s demands to receive payment in roubles.

It’s frustrating to read this sort of thing, and then have the Guardian quoting an energy expert depicting Putin as not delivering on his “threat”. Again, the decree is consistent with Putin’s original statement and he made a point of indicating the change would be parsimonious and was intended to leave the contracts in place. And anyone who regards the procedure as complicated must never have looked at a credit card or brokerage agreement, or the rules of any exchange.

But again, it’s all good for Russia for the West to regard Putin as having conceded when he’s getting what he wanted. So kudos to non-finance-savvy foreign policy types and the media for creating a phony panic that worked to Russia’s advantage.

Finally, RobertC highlighted a new Reuters article that describes how the US is upset that it hasn’t cratered Russia’s economy:

Senior U.S. officials fanned out this week to press world leaders to keep piling pressure on Moscow or join the campaign of sanctions and other measures, as the war in Ukraine enters its fifth week and the initial economic shock to Russia seems to be ebbing….

The effort comes as the initial impact of unexpectedly tough sanctions on Russian banks, oligarchs and companies begins to wear off somewhat, and the United States considers its next economic steps to isolate Russian President Vladimir Putin.

Within days of cutting off key Russian banks from the international SWIFT financial transactions network and immobilizing the bulk of the Russian central bank’s $630 billion foreign exchange war chest, the rouble lost half its value, prompting U.S. officials to declare that Moscow was battling a financial crisis.

But a month later, the rouble has largely recovered to its level just before the invasion, propped up partly by Russian capital controls, government orders for export firms to sell foreign currency and companies gathering funds to make quarter-end tax payments. Shares on Russia’s stock market are trading again, although they have dropped in value.

Russian bank VTB (VTBR.MM), a principal sanctions target, remains open for business in Europe, where it has gathered billions of euros in deposits, mainly from German savers….

The Biden administration is making sure European allies are firmly aligned on punishing Putin, while working to sway leaders who have sat on the sidelines as the war stretches on, officials say.

“We’ve got to continue to raise pressure on Russia and increase our support for Ukraine,” one senior U.S. official said, speaking on condition of anonymity. “This is a challenge that is facing the free world and all democratic nations. And we need to be prepared for it to last a long time.”

Xi is set to have a videoconference with European leaders today. Western stories made clear that their officials intended to press Xi yet again. The Chinese government-connected Global Times effectively said that was not on, the meeting was to discuss EU-China matters. Recall Xi had said in his call with Biden that China had no nexus to this Western crisis, and invoked a pet saying: “He who puts the bell on the tiger needs to take it off.”

India has gotten a barrage of visits this week, from UK Foreign Secretary Liz Truss, from US Deputy National Security Advisor for International Economics Daleep Singh, and from Russia’s Foreign Minister Sergei Lavrov. Australia is piling on per Time.news:

Meanwhile, the US and Australia sent a warning message to India. “It simply came to our notice then. It is time for the United States and other countries to stand up for the freedom, sovereignty and democracy of the Ukrainian people, rather than pay for Putin’s war, “said Gina Raymond, US Secretary of Commerce in Washington. Australian Trade Minister Dan Tehn made a similar point.

The other members of the “Quad” are reportedly unhappy with India over standing out the Ukraine conflict. But with India getting direct pressure from the US and Japan (via a recent visit), it’s not obvious how much Western bleating “the Quad is mad at you” matters, since there’s no reason to think that group matters more to India than the bi-lateral country relationships.

Indian officials so far appear to be continuing to resist Western pressure. The Scroll recapped the set of foreign visits, and put Lavrov in the headline: India in favour of resolving disputes through diplomacy, S Jaishankar tells Russian foreign minister. The story also indicated that while Truss said the UK “respects” India’s decision to buy discounted Russian gas, the US was still making threats:

On Thursday, United States Deputy National Security Advisor for International Economics Daleep Singh said that countries attempting to circumvent the sanctions imposed on Russia will face consequences.

The US fails to understand that Russian sanctions were the best thing that ever happened to Putin. Why do they not anticipate other backfires when they inflict economic punishment on countries with real heft, including nukes?

00 Putin's decree on the procedure for paying for Russian gas by foreign buyers
00 Putin Videoconference Sanctions, Gas, Airlines etc. 3-31
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  1. Tjbuff

    I’ve been wondering lately when the sum total of American diplomacy devolved into making threats. Kind of a waste of a State Dept.

    1. redleg

      That’s an easy answer: 1992.
      USSR check removed in 1991, GHWB admin was the last administration to be affected by that check.
      I have come to the realization that the All Stick No Carrot methodology isn’t limited to foreign policy. It is the embodiment of US culture, from public health to employment to education to… well, name one thing that isn’t punitive in the US today. I can’t think of anything that isn’t.

  2. Cocomaan

    WSJ had an above the fold article on its app yesterday saying “Russia Set for Steep Slump, Long Stagnation.” There was no similar headline for, say, the USA, whose currency is currently on fire, where everything is getting unaffordable for anyone but the top 10% of earners, with things set to only get worse because of sanctions and turmoil.

    Clearly there was no gaming out of sanctions. Our ruling class is much more interested in Twitter likes than they are in the nitty gritty of commodity prices.

    1. Yves Smith Post author

      FWIW, the Russian Central Bank is predicting a pretty big GDP fall this year and high inflation for 2022. But they predict stabilization and a big drop in inflation in 2023 and pretty good growth in 2024. This may seem like wishful thinking but the I am told the Russian Central Bank is pretty good by central bank standards at forecasting.

      1. Colonel Smithers

        Thank you, Yves.

        The central bank is good, but a bit eager to please western observers, many of whom are just BSers. I dealt with the bank a dozen years ago over what became known as Basel III. They were too hasty in trying to move their banks from the standard approach to calculating capital to the advanced approach. Neither, did the bank have the technicians to supervise. Even the ECB didn’t at the time, so it was no disgrace.

        1. RobertC

          Colonel — I dealt with the bank a dozen years ago…

          Could you share your thoughts on the bank’s performance since Elvira Nabiullina’s appointment June 2013. Thanks.

          1. Colonel Smithers

            Thank you, RC.

            I think the governor was, again, trying to impress westerners and could have done more to support self sufficiency and develop local production and markets. Plus develop local expertise and reduce reliance on foreign expertise, but that goes beyond her remit.

            I reckon the credit for the resilience displayed by Russia so far should go to Putin and Glaziev, who should be governor.

            1. RobertC

              CS — thank you for your thoughts.

              I was quite impressed with Russia’s response (recovery?) from the 2014 events. And I’ve always believed Putin gets 1st credit. I believe his love of Russians and Russia is his core.

          2. Colonel Smithers

            Thank you, RC.

            I think the governor was, again, trying to impress westerners and could have done more to support self sufficiency and develop local production and markets. I reckon the credit for the resilience displayed by Russia so far should go to Putin and Glaziev, who should be governor.

      2. Sausage Factory

        This is worth a read (In German but easy to translate)


        For sure some inflation but I don’t think it will be that bad and they’re looking at record receipts on Gas and oil this year because of the high prices. Ruble has already recovered its pre-war price. Things may get rocky but I don’t see it being any worse than in 2015 which is surprising considering the number of sanctions and their nature.

        “Russia planned the national budget with a dollar-ruble exchange rate of 72, but now the ruble is around 85, much weaker, but with a view to energy exports this is an advantage. If we multiply the oil price by the ruble exchange rate, it shows that Moscow expected revenues of around 4,500 rubles per barrel of oil, but is getting much more, around 7,000 rubles.
        The profit from energy sales will be enough to cover the impact of Ukraine-related sanctions on the Russian economy, among other things, by halting inflation.”

        Kluge also believes the costs of the operation in Ukraine are not very high, and economic measures, except for a complete embargo, will hardly stop the tanks. And seeing that the Russian Central Bank has been inventive in introducing counter-measures to keep the economy afloat, Kluge predicts that Russia will survive the sanctions and even have a budget surplus this year.

        1. juno mas

          …and the US will see higher inflation. Even when food and fuel prices are excluded from the calculation.

          It’s amazing how the MSM reports the proposed release of 1M barrels per day from the strategic (military) oil reserve as a positive for the economy when, in fact, the sanctions on Russia are the cause of the crimped lifestyle of the US proletariat.

  3. timbers

    European buyers would pay in foreign currency and then authorise Gazprombank to make the conversion into roubles, which would then be used to formally purchase the gas.

    The convoluted scheme…

    One of my first real fulltime jobs was at State Street working with mutual funds that invested in other nations by purchasing foreign stocks on their local stock exchanges. Any purchase of foreign stock required us to create a form to purchase FX to cover the trade (foreign exchange to purchase the currency equal to the stock purchase). Later this was automated.

    I didn’t know at the time I was just part of a convoluted scheme.

  4. The Rev Kev

    On the TV news they were talking about EU members reacting to this development and ‘hissy fit’ does not come even close to covering it. Here is an article giving these reactions-


    My award for Best Reaction (which I saw him say on the news) was French Economy Minister Bruno Le Maire when he said in an outraged voice “Contracts are contracts!” Pull the other one, Bruno. It plays Jingle Bells.

    1. Colonel Smithers

      Thank you, Rev.

      A month ago, Le Maire said the EU was declaring war on Russia. When asked to elaborate, Le Maire backtracked by saying he meant an economic war.

      Sadly, this is just all too typical of the European elite. They have yet to come to terms with the past month and how it’s not just Russia that is no longer playing ball.

      1. Petter

        Didn’t Ursula von der Leyen also say a month or so ago that the goal was to essentially destroy Russia economically? It would seem that if someone says they’re out to destroy you, you’d do whatever you could to defend yourself.

        1. Sausage Factory

          The EU is going through a very painful attitude adjustment lesson. Much as Ukraine is.
          They really need to learn to cheat on their own sanctions (like the US does all the time – like importing more and more oil from Russia since the day the sanctions began) They’ll get the hang of it, paying in rubles is the least of their worries.

      2. David

        Yes, there’ll be a great deal of coming-to-terms to do in Europe over the next few years, irrespective of exactly how the current crisis turns out. Watch this space, because Europe’s self-image is only partly economic and political, it’s also highly moralistic and normative, and takes it for granted that the rest of the world wants to be like Europe, or at least it should. Now Europe has run into a brick wall, and the consequences won’t be pretty. Like all normative organisations, the EU doesn’t do failure very well.

  5. Samuel Conner

    > It would also mean the foreign currency payments would be in the hands of Russian institutions, and hence not vulnerable to being “frozen,” aka expropriated.

    This confuses me. As I understand it (from prior NC articles) the “physical location” of the foreign currency is a computer ledger at the central bank of the currency issuer, recording reserves in an account owned by the Russian institution. In principle, that central bank could ‘freeze’ those reserves. If that’s right, it seems to me that the protective nature of the new payment arrangement is that the Russian institution could refuse to accept Euro payments if its ECB account were frozen, which would prevent ruble conversion, payment and gas delivery. Presumably the ECB would not want to take that risk.

    Limiting the permitted recipients of Euro payments to a single bank might be a clever concession to Western hostility — the fewer non-sanctionable banks there are, the happier the sanctioners will be, even if the net effect on R economy is not much different. It might be a financial equivalent of the “no more force than necessary” military approach taken in the Ukraine intervention.

    re: the messaging ‘fail’ in characterizing Putin’s decree as a ‘climbdown’, I continue to wonder, only half tongue-in-cheek, whether there might be a secret ‘peace movement’ within parts of the Western foreign policy establishment. Maybe they’re not all deranged.

    1. Yves Smith Post author

      No, I never said any such thing. There is no such thing as foreign currency independent of a financial asset or contract. You can trade dollar spot (cash), futures, forwards, hold dollar bonds, dollar stocks, dollar derivatives. The Fed most assuredly does not have entires with respect to all of these. The daily computational demands would be massive.

      For instance, see this:


      The system referenced, OTCnet, is a Treasury system. Nothing to do with the Fed.

      1. Samuel Conne

        Thanks for this clarification!

        Trying to understand, does this mean:

        Gazprom Bank gets what is essentially a “promise to pay” Euros from the gas buyer.

        Am I right in thinking that the R central bank must have an account with Gazprom Bank which becomes the “location” of the “promise to pay” after the Euro/ruble conversion.

        Since the Euro obligation exists as a contract between the buyer and the R institution, rather than a ledger entry at the ECB, it is an asset of the R CB that is beyond the ECB’s reach.

        Just trying to understand the ‘plumbing’ and its implications.

        1. Samuel Conner

          > the ‘plumbing’ and its implications

          (sorry about the name typo; auto-complete gives me a range of past mis-spellings, and I sometimes select the wrong one)

          It would be handy to have one of those multi-column ledger tables that are sometimes used to explain MMT descriptions of central bank/treasury and private bank operations.

        2. Yves Smith Post author

          No, please no. MMT is not helpful here.

          Banks create deposits out of thin air, remember? The only central bank involvement is creating the necessary reserves, which they have to do if they are going to maintain their policy rate.

          1. John Derpanopoulos

            I think what Samuel Conner is alluding to is that Gazprom bank would get creditted euros which would be the liability of a European commercial bank. These euro assets could be subject to sanctions in the future.

            1. Yves Smith Post author

              Theoretically that is true, but trying to revoke a transfer from another bank after it is made (as in after any legally-stipulated window for reversing the transaction, tantamount to cancelling a check before it has cleared) is equivalent to blowing up the banking system. I don’t see how it could be clawed back once executed. They are irrevocable transactions.

              1. John Derpanopoulos

                Very simply through confiscation/freezing of these euro assets. Of course that would lead to a stop in the gas flow so Gasprom bank should convert the euros asap into something else just to be on the “safe side.”

                1. Yves Smith Post author

                  No, what you are writing makes no sense. You cannot confiscate assets that are in another person’s hands. Please tell me operationally it happens. The euros have left the barn and are in the next county. They are not numbered.

                  The EU isn’t going to and can’t put a tight cordon around Russia. Fer Chrissakes, French businesses have not withdrawn from Russia! Their Russian ops are doing the reverse trade, selling roubles in Russia to get euros to send back home/

                  1. Skippy

                    Sorry YS but I can’t help lmmao at contracts and the flows from them proceeding monies and then some are befuddled about it all just like Greece et al … but – but some ideological or philosophical framework to grind axes on ….

                    Then again those thinking MMT is universal in application … groan … frustrated teachers thingy …

                  2. John Derpanopoulos

                    The euros haven’t left the barn at all. They are the liability of the euro bank that issued them. (Remember banks issue long at will?)

          2. Susan the other

            So if the Russian Central Bank is correct and their economy is healthy again by 2024, will this mean that they will have accumulated 2 years of very large rouble payments of devalued roubles and that they will make a killing on their own currency? If roubles to euros are 90:1 and if roubles climb back to something like 20:1, that’s a 70 euros per rouble gain, no?

            1. Skippy

              A nations wealth or well being is not intrinsically a matter of its currency cross as fiat is just a tool of accountancy/satisfying contracts and not wealth in of itself e.g. no permanent store in perpetuity.

              What does matter is its flows of goods/services and how that portends to its VoM against all the others and the direction any given economy is moving too.

              Per se the U.S. wealth is denoted by the Z1 and not its spot price on its currency.

  6. Dean

    Some cursory research shows German and Swiss banks are connected to SFPS (Russia’s Swift contingency payment system). But I can’t find anything more than the same article recycled.

    Do any readers know which banks these are and if this is another route for western firms to buy rubles (to make their gas payments)?

    1. Yves Smith Post author

      Please read the post. You give the very strong impression you didn’t, otherwise you would not be asking about how to get roubles.

      1. Putin specified how this trade gets done. You as gas buyer set up a dual currency account at Gazrprom Bank in your regular payment currency and in roubles. You make your regular, contractually specified payment in the currency you have always used into that account. You have standing instructions for it to be converted to roubles through the Moscow Stock Exchange and then for those roubles to re remitted to Gazprom (which to be clear is a different legal entity than the bank).

      There is no reason to hunt for roubles. In fact, hunting for roubles guarantees you will have the wrong amount. You tender your foreign currency payment and the amount of roubles is determined by the spot price on the Russian Stock Exchange. There is no mechanism to back into a rouble amount.

      2. You completely missed the point. The immediate point is not the roubles. The roubles are the pretext for forcing the payments to be made at an unsanctioned bank, now specified as Gazprom Bank, to prevent further sanctioning of Russian financial institutions.

      3. The market for roubles outside Russia is very thin. Any effort to buy enough roubles to make a gas payment would drive the price up and it would almost assuredly be higher than in Russia.

      1. Colonel Smithers

        Thank you, Yves.

        One wonders if that flexibility / concession could be extended to Lukoil, which has its own bank and branches into the EU from its Swiss entity, emulating Gazprom on both counts. HSBC is their London correspondent bank.

      2. Dean

        Shame on me. I didn’t realize garzprom a Russian bank was exempt from swift sanctions but should have. They would also have a pipeline to buy rubles.

  7. Thuto

    Slamming the door in the face of facts and nuance is what’s required in the msm’s brand of “all spin all the time” journalism. The shackles of the responsibility “to keep the public informed with objective, fair and truthful reporting” that used to be the stock-in-trade of the profession have been broken and it’s now open season for journalists to merge fact and fiction until they’re virtually indistinguishable in order to befuddle the public. With respect to the Ukraine Russia conflict, a fine grained analysis of the situation comparable to this post is simply unimaginable in the western mainstream press because their marching orders are to depict Putin as completely incapable of outmanuevering his moral and intellectual superiors in the white house and EU.

    Framing the exposition of the rubles for gas mechanics as a Putin climbdown is on-brand and on-message, after all, lest we forget, “Russia is losing”.

    1. Scorpion

      At this point have come to the reluctant conclusion that the elites in charge of the US and most of the West are hell-bent on engineering a collapse so that they can impose a new order. This being the case, the purpose of the media is to give the impression that it’s all business as usual which means that the population elects its leadership who in turn serve the interests of the people, that the various administrations are competent and honorable etc.

      This is why increasingly they just lie and lie with little attempt to make it believable to those who are well informed. They know that less than 5% of the public has any interest in depth coverage or understanding so for the 95% they are providing a narrative facade. They are good at what they do. Most Americans, for example, believe they have two competing political parties each of whom wants to make the country better. Most pundits still assume this is the underlying model and justify mistakes as the result of stupidity not deliberation.

      And it will continue in this way until either the people refuse to buy into these clearly deranged narratives or a financial and social collapse demands some sort of reset which all this is now leading towards.

      The irony is that even though it seems that Russia-China is now clearly lined up against the US and its Western junior partners, the end result is going to be the same no matter which side prevails, namely some sort of reset. Personally, I like the sound of multipolarity but I suspect the result is going to be a new system which involves extensive surveillance, social credit, digital ID’s and currency and all the rest of it. Presumably all that multipolarity means is that there will not be only one small group of elites lording it over the entire planet, rather several different ones with hopefully different values and cultural priorities.

      The less centralization the better.

  8. Bart Hansen

    From the Reuters piece:

    “The effort comes as the initial impact of unexpectedly tough sanctions on Russian banks, oligarchs and companies begins to wear off somewhat, and the United States considers its next economic steps to isolate Russian President Vladimir Putin.”

    We could try a blockade of St. Petersburg. It worked so well for the West during WWII and would be especially upsetting for Putin personally.

  9. Maxwell Johnston

    Thank you Yves for these consistently excellent updates and clarifications. I continue to think that the USA (et al) massively overstepped by stealing RU’s central bank reserves, and that Putin’s demand to be paid in rubles is a small but crucial first step towards what will eventually be a very different international financial system. Or systems, assuming we end up with two parallel systems based roughly around USA/EU et al vs China/RU et al. I certainly expect that RU will start with gas and then gradually extend this payment scheme to all its other commodity exports. It doesn’t mean the collapse of the USD and EUR or the rise of a gold-backed ruble (not anytime soon, at least), but it does mean the USA will never again have the ability to impose financial sanctions that it enjoyed up until a few weeks ago. That card was played, and it can only be played once.

    There’s a lot of ignorance and wishful thinking out there. NC and its comment section is a godsend.

    1. John Zelnicker

      Maxwell – In one of his recent interviews posted here Michael Hudson said that the freezing/expropriation of $300 billion of Russia’s reserves was the moment that dollar hegemony ended.

      He expressed surprise that it was the US that forced de-dollarization sooner rather than the efforts of Russia, China et. al. to create separate non-dollar payment systems for trading, which are in process, but not yet fully realized.

      To the extent that the US benefited from the dollar being the world’s reserve currency, those days are over. (I’m not sure how much of a real benefit that was, except for the military and our balance of payments situation.)

  10. M Quinlan

    Stupid question, who on the Russian market would buy Euro?
    They are required to pay for imports from the Euro area which are been cut off, either by government dictate or companies committing voluntary euthanasia.
    Will they be used for purchases from 3rd parties? Sanction busting?

    1. MikeO

      That’s interests me, too.
      Is this a means to incentiviZe Europe to do business with Russia?

      1. Foy

        Me too, I’m curious who in Russia wants to hold those Euros when bought on the Russian Stock Exchange. It will be interesting to see the level of that Euro demand, as Yves said “the amount of roubles is determined by the spot price” on the Exchange.

    2. Yves Smith Post author

      Russia still buys imports from Europe and the US, just not as many as before.

      And speculators will hold the currency as an investment. They might trade into European bonds or stocks.

  11. Louis Fyne

    buried under the news this week, the Russian Central Bank put the Ruble on the gold standard, 5000 rubles = 1 gram of gold.

    This is roughly 15-20% below the current global market price. IE, the Russian central bank thinks that the current fair value of the Ruble is 70 to 75 Rubles per dollar versus the 85 rubles per 1 USD today.

    1. Grebo

      That is not a gold standard. They are not offering to sell gold at that price, only buy it. It puts a floor on the value of the Ruble but does not fix it or make it convertible.

  12. Dftbs

    I know a lot of digital ink has been spent on the topic, but I figure I’d share this “research” note by Zoltan Pozsar (of 2019 repo fame):


    I put the word research in quotes because in our world of “full faith and credit” this may seem like an opinion piece. But I think it’s a pretty good framework for the mechanisms at play in the brave new monetary world we are stepping into.

    I would add that I disagree with half of his conclusion. He foresees a “Bretton Woods III, where banks create eurorenminbi and where eurorenminbi balances are accumulated to buy Chinese Treasuries (inevitably, but not imminently)”. I don’t think the Chinese are keen on making Renminbi the reserve currency and taking on the externalities of financialization. I do agree that the brave new world will see the move towards “commodity reserves instead of fx reserves.”

    I bought a few bags of rice after reading.

    1. RobertC

      Dftbs — I do agree that the brave new world will see the move towards “commodity reserves instead of fx reserves.”

      Fascinating concept. Something to add to my watch list. Thanks.

  13. Foy

    “One change from the process we envisaged at the get-go is that Russia has stipulated one unsanctioned bank, Gazprom Bank, to be the payment recipient, as opposed to having any unsanctioned Russian bank be eligible.”

    I’m wondering if this is only just in the beginning in order to make an example of the UK pour encourager les autres. UK sanctioned Gazprom Bank unlike other EU countries.

    “Dmitry Peskov says that the inability for the British Shell company to buy gas from the Russian Federation is caused by the costs of London’s anti-Russian policy.

    “London wants to be the leader of everything anti-Russian. It even wants to be ahead of Washington! So That’s the cost!”

    Thus, he commented on the fact that the UK, unlike the EU countries, has imposed sanctions against Gazprombank, and this does not allow the British company to buy Russian gas, not even for rubles.

    https://t.me/asbmil/964 (ASB Military News Telegram post)

    Then after the UK is made an example of, and they see the light, open up to other unsanctioned banks. Three dimensional chess and all that…

    1. Foy

      Someone mentioned the other day that Reuters uses roubles. But maybe we should ask some American Russians!

  14. Acacia

    Reuters’ headline cracks me up:

    Gas Bill Final Notice

    It is not clear which side has the most to lose if existing gas contracts are halted but Germany, the most heavily reliant on Russian gas, has already activated an emergency plan that could lead to rationing in Europe’s biggest economy.

    “Not clear”, eh?

  15. eg

    I am still confused as to how the sanctions are supposed to hurt Russia more than the countries imposing the sanctions when Russia has real resources (fossil fuels, fertilizer, grains, metals) that those other countries’ populations need?

    Don’t the sanctions just make everyone poorer?

    1. SocalJimObjects

      Russia is not exactly strong in manufacturing I think? China is resource poor, but it’s the world’s factory. So yes countries like China need access to what Russia has, but at the same time Russians would also like to have access to finished goods like smartphones, etc?

  16. Evgeny

    There are several ideas about why Russia does it this way, and what comes next. This article raised several questions, but we can dig a bit deeper.

    Why would the foreign currency need to be exchanged at the stock exchange instead of just the treasury and/or other banks providing it OTC? Well, that way you can get real price discovery. The Fed would gladly print more dollars, but the RCB doesn’t want to create inflation just because, they want to allow the public exchange to affect the price of the EUR/RUB. Another reason for RCB to do it this way is that anyone who might need Euros in Russia should be able to get them, thus this arrangement is providing at least some sort of liquidity for these foreign currencies that must be in short supply in Russia right now.

    Another idea, that was also raised in this great article, is what will happen to any future contracts?

    Right now the existing contracts stipulate payment in Euros or Dollars. But the much much more important bit is that these existing contracts also stipulate the price of commodities to be denominated in dollars.

    How about future contracts? When new contracts need to be drafted, it might be that the price will be set in Rubles instead! For example, the RCB right now has set a price of 5,000 Rubles for 1 gram of Gold (temporarily until June/July). This means that lets assume the current price of gold is $1925 and price of oil is $100 ; that makes 5,000 Rubles equivalent to 0.618 barrels (I’m just a sucker for the golden ratio), or 1 barrel equal to 8077 Rubles if I got my math right.

    Now, let’s say in future contracts Russia pegs oil to be 8,000 rubles per barrel. That would have much bigger implications on the dollar/ruble exchange, especially if Iran, China, India and Saudis agree to this price for Russian oil. Any such signed contracts will immediately absolutely demolish the petrodollar.

    1. Yves Smith Post author

      I actually agree that currencies traded on a central exchange is a good idea. The usual reason for an OTC market is that there aren’t enough buyers and sellers of a particular instrument to have a liquid market, so you need a middleman to take on the position, with the notion that he either likes being long or short (he has a short or intermediate market view), or he built in enough in his big or offer that he can afford some price risk while he “flattens” his position. OTC markets are pretty much unavoidable in bonds since bonds are not fungible (even for bond issues by the same company, each bond issuance is unique).

      “Minor” or “exotic” currencies will always be traded OTC. But there is a case for the big currency crosses, dollar/euro, dollar/sterling, dollar/yen, to be exchange traded. But they aren’t because if anyone were to try to go that way, everyone and their uncle would try to set up an exchange, so you’d wind up with fragmentation and low volumes….even assuming major players would go along. Why should a bank like Citi that generates demand for FX trades from its far flung operations give up profits by routing trades to an exchange rather than continue to do them OTC?

      So the approach in Russia is sensible but Russia is a special case because roubles are liquid in Russia and not at all outside. By contract, once you have OTC markets that work pretty well (dealers do get indicative quotes from other market participants on Bloomberg or other data feeds), you can’t impose an exchange traded regime. Even after the crisis, when there was a push to have centralized trading of a lot of derivatives, pretty much all we got was centralized clearing.

      1. skippy

        For everything you just said the currant system scares me to death because of data compression.

  17. Foy

    Yep. But that pre-supposes the people making these decisions to sanction are rational.

    I have come to the conclusion that they are not. Just like in the Iraq war times there was a close group of neo-con ideologues who started the war in Iraq (Cheney Rumsfeld, Project for New American Century etc), I think there has been a group of Russia hating fanatics in the US State Dept for many years who have Eastern European family history of hating Russia, and it goes back to the Tsars and Stalin being anti-Semitic, as Michael Hudson has talked about. They have infected the US State Dept since WW2 days, Brzezinski in the 80s, and now Nuland, Blinken, and Freeland in Canada.

    These are the people driving the sanctions policy and Nato expanding into Ukraine etc to poke the Russian bear, and the effect and blowback of the sanctions they don’t care about, or barely consider, just like Cheney Rumsfeld and co didn’t consider the consequences of their actions. They operate short term in solely what can cause grief to Russia without thinking of long term consequences. They got away with it for 40+ years, but now their playbook has caught up with them.

    And unfortunately there is no one to pull them up and they are taking the world along for the ride.

    Michael Hudson mentions them here in this interview (i’ve timestamped the link)

    “The hatred of Russia goes back to the fact that the Tsarists oppressed the Jews and Stalin was anti-Semitic. The people who are leading the anti-Russian fight are literally, I’ve known them for 50 years since I worked at the Hudson institute, they are fanatics filled with hatred for what the Tsarists did, and Stalin did to the Jewish population. And they are working out this ethnic hatred. I don’t see them putting the concerns of the 99% over their own personal proclivities and over their campaign financiers on Wall Street, corporate America and the monopolies.


    1. lance ringquist

      “Regime change polices were set up by bill clinton: This was a unit established by President Bill Clinton, then continued by Vice President Dick Cheney and his daughter Liz. Mike Pompeo, the current director of the CIA, has confirmed that this unit exists. This has led to rumours in the press, followed up by President Trump, of a US military option.


      1998 Iraq Liberation Act, see gore with nafta billy and the generals

      Joe Biden voted in favor of the act, which was signed into law by Clinton in October 1998.

      we can never recover till nafta billy clintons disastrous policies have been reversed


  18. Ivan

    Stupid question:

    So, Gazprombank converts EUR to roubles.
    Where do those EUR end up then? And who actually
    buys those EUR (via “conversion”)?

    Before the sanctions, the EUR would end up with the Russian Central Bank
    which would deposit them in Europe.

    What is the mechanism now? How will those EUR actually end up in Russian hands?

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