Bečarević: What will paying for natural gas in rubles produce?

By Almir Bečarević

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Natural gas is a miracle and that is why it was chosen to be the first energy source that Russia will charge in rubles from today. This is a historic decision because natural gas has never been charged in Russian rubles. I say a miracle because Europe depends on the supply of this energy source, especially Germany. In the first step of changing the payment currency, oil was not chosen, but natural gas, because it is IMPOSSIBLE in a short time to find a replacement in Europe for Russian gas, and therefore the decision will affect many more buyers than if oil had been chosen. At the same time, it is impossible to fill Europe's empty gas storage facilities without Russian gas, at least for the next winter. Therefore, Russia chose natural gas and, by changing the payment currency, introduced confusion and drama among European gas buyers. Germany reacted first and announced that this could be considered a breach of contract, and for payments in rubles to function, all existing contracts that Gazprom Export has concluded with its customers must be amended.

What will paying for natural gas in rubles produce?

Firstly, each company will have to buy rubles on the banking market, which they will then use to pay for imported gas. Since this is a currency that is not favored on the European market and has no demand due to sanctions, rubles will have to be obtained on the Russian banking market. The change of payment currency alone will not affect gas prices, except for an increase in conversion costs and possible additional costs related to conversion, which would be introduced as a means of additional profit for Russian banks.

What could follow, and which is much more radical, is that Russia introduces an obligation to pay all its obligations in rubles. As far as natural gas is concerned, I mean paying for all gas transit in Russian rubles. The pipelines built by Gazprom Export were financed by loans from European banks, and obligations were mostly undertaken in euros or dollars, and now it could happen that instead of these currencies, Russia starts repaying installments in rubles. Bulgaria announced on national television, and without a clear decision yet on paying Gazprom's obligations in rubles, that it will not accept such payments. It also questioned the further supply via TurkStream, because TurkStream is burdened with loans that were not taken out in rubles but in USD and EUR.

What is also interesting is that gas transport through Ukraine is proceeding smoothly to all European buyers, and now let's imagine a situation where Gazprom Export starts paying for this gas transit through Ukraine in rubles. Ukraine does not buy gas from Gazprom but on the European market and pays for it in USD, and now it would receive rubles for gas transit, which it could do nothing with, as it is difficult to expect that it would pay for any goods it buys on the European market with such received rubles.

The games being played over natural gas are not at all harmless, because Europe must urgently fill its gas storage facilities for the next heating season, and this move by Moscow will further introduce nervousness into an already unstable gas market, which has already reacted with a 20% increase in gas prices on the stock exchanges.

In the end, Russia is making desperate moves to stabilize the ruble, which is the sole intention of this change in payment currency, but by doing so, it contributes to greater nervousness among European buyers, who will use this move by Moscow to prove that a replacement for Russian gas should be found as soon as possible. Russian gas is becoming undesirable because it has been shown that Europe was too dependent on Russian gas, and now, by changing the payment currency, Russia is making a move that only seals Europe's hurried efforts to replace Russian gas immediately and now.