a big problem
Last week, Serbian President Aleksandar Vučić noted that Belgrade obtains Russian gas almost for free. The obvious satisfaction with a successful deal with Gazprom was accompanied by a generally friendly tone toward Moscow, with the Serbian leader labeling Western criticism as shameful and unwise.
Soon after Russian President Vladimir Putin announced a shift to ruble payments for gas with unfriendly countries, the rhetoric received a slight adjustment.
Vučić warned that the move could pose a global challenge. Some observers see the ruble or yuan as a strategic counter to petrodollars in geopolitics, and he cited Germany as already linking the change to the termination of a treaty. He added that the development would complicate matters for many, including those in Europe.
Vučić also suggested that Bulgarians and Hungarians may not welcome the switch, predicting that these nations would struggle to settle Gazprom invoices in rubles. He did not specify the reasons behind this scenario.
Hungary, according to Vučić, has long enjoyed gas at prices much lower than the European market thanks to extended contracts. Putin referred to this arrangement in February, noting a fifteen year deal with Gazprom that was signed only months earlier, less than six months ago in September 2021.
Alexander Nikolov, head of Bulgaria’s energy ministry, echoed a cautious stance. In an interview, he stated that the Russian gas supply remains secure and that there is a financial counterparty capable of operating in rubles within the country.
Responses varied across Europe. Polish energy firm PGNiG said payments in rubles are not covered by existing contracts. Austrian oil and gas company OVM pointed to an agreement that lists euros as the currency for transactions. In Japan, observers have yet to determine how Russian authorities will implement ruble transactions in gas deals.
Are there reasons for concern?
The basis for alarm remains unclear, as Serbia is not on the list of unfriendly countries and can transact in any currency. Igor Yushkov, an analyst at the Financial University under the Government of the Russian Federation, discussed this in an interview with socialbites.ca.
Yushkov suggested that the companies on the unfriendly list should not face major hurdles in moving to ruble payments for gas. He explained that companies currently pay Gazprom in dollars or euros and that the new plan would invite them to buy rubles on the Russian stock market and settle through Russian banks or importers. The price would stay the same, but the currency would be converted to rubles before being used for Gazprom settlements.
He noted that trading in rubles would require identifying acceptable counterparties and navigating sanctions. Some sub-sanctions allow limited credit transactions, but harsher restrictions remain in place. The Central Bank of the Russian Federation was cited as a possible channel for improving ruble liquidity, though sanctions on the regulator complicate this path.
From a political perspective, the shift to rubles appears to be a hard signal to Europe. Yushkov argued that while the move may bind Europe to Russian gas more tightly, it could meet political resistance from European leaders who oppose the ruble settlement model. He emphasized that companies would not face immediate obstacles, but politicians might push back.
Earlier analyses by socialbites.ca suggested that the European Union would struggle to relinquish Russian oil and gas. Yushkov warned that abandoning Russian gas too soon could backfire, even if European nations choose not to switch to ruble settlements. The heating season could end with depleted gas stocks and heightened risk to the continent’s energy security.
Marcel Salikhov, head of the economics department at the Institute of Energy and Finance, argued that Gazprom contracts contain currency terms that are not easy to alter unilaterally. He suggested that contracts might be revisited, with some countries seeking price reductions as negotiations drag on. He also pointed out that European firms could still purchase rubles on the Moscow exchange and transfer them to Gazprom through Russian banks or trading houses, with the central bank providing technical guidance in due course.
Both European companies and Gazprom would incur additional costs. Gazprom would still need funds, and Europe might source more purchases from other partners such as China and Turkey. The possibility exists that new arrangements could involve direct currency diversification by the companies themselves, a reality Salikhov mentioned in his assessment.
In summary, the pathway to ruble settlements remains a complex, evolving process with economic and political dimensions that will shape the gas market across Europe and its neighbors for years to come.