Important news item here:
Russia’s insistence that its “unfriendly” nations pay in rubles for Russian natural gas risks disrupting European supplies as soon as this week as the deadline set by Putin for moving to ruble payments is drawing closer. Europe, which depends on Russian natural gas for more than one-third of its demand — with some countries, including the biggest economy Germany, depending on Russia for half of its consumption — has rejected the gas-for-rubles idea, saying it would be a breach of contracts to switch the currency in payments. Russia, for its part, says it demands only rubles for its gas and will not ship gas for free.
If you don’t think the economic impact of this will also affect the American economy, then brace yourself. The deadline for Europe to convert euros to rubles for natural gas payments is tomorrow, April 1st. On the other hand, I have to admit this is a brilliant play on the part of the Russians.
- The US seizes 300 billion in Russian USD deposits in American banks.
- Germany sanctions Russia by forfeiting their contract on the Nord Stream 2 Pipeline.
- The US and EU impose numerous sanctions that make it impossible for Russia to buy or sell much of anything they need to import using USD or EURO. HOWEVER, Russian gas, oil, food and numerous other commodities keep flowing to Europe and America.
- Russia counters by demanding ruble payments for natural gas. Dmitry Peskov said: “No one will supply gas for free, it is simply impossible, and you can pay for it only in rubles.” The EU in effect said, “We won’t take dollars or euros in trade with you.” The Russians said, “Then we will only take rubles to trade with you.”
- The Europeans claim that this is a “breach of contract,” which is hilarious because all the sanctions against Russia are a breach of numerous contracts. These breaches are justified in the name of “sanctions.” But now Russia is sanctioning the west. “Either pay in rubles or get cut off.”
Is Russia bluffing? Will Europe get gas after the deadline if they don’t pay? My prediction is that Russia isn’t bluffing. They planned this for a long time as a counter-measure. Next comes crude oil, coal, metals, rare earths, minerals, precious stones, noble gases, lumber, fertilizers, food oil, and grain — all may soon be sold in rubles.
The effect of agreeing on the European side is nil. They would simply exchange euros to rubles and pay that way. Very simple. But the effect on the Russian side is huge since it would bolster the ruble in effect reversing most of the sanctions. The effect of refusing on the European side is huge. Energy prices would almost double since 40 percent of their natural gas comes from Russia. The US can only make up about 10 percent of Europe’s gas loss in the short term and with a much more expensive delivery cost.
Meanwhile, the effect of a European refusal is virtually nil in Russia for the long term since the Asian market demand will make up for the loss of sales. In fact, Russia did its first oil sale to India using a rupees to rubles exchange. Saudi Arabia started accepting Chinese yuan for oil, thus undercutting the petro-dollar. The east has already found a way to circumvent western sanctions even while cutting off the west.
This was obviously a long term plan thought out ahead of time in 2021 or maybe even years before these sanctions.
Russia, India and China have been seeking a hard currency for decades. The big obstacle was the petro-dollar. Saudi Arabia has to play along since they need the Chinese market or risk losing all of that to Russia. So now the dollar has softened. The devaluation the dollar and the euro will be huge in coming months. As eastern currency becomes viable, the west’s currency will be devalued. Inflation rates will surge to double digits.
China and India have the second and fifth, respectively, ranked GDPs in the world at $14.34 trillion and $2.88 trillion, but neither the Chinese yuan nor the Indian rupee is considered a hard currency.
So this is huge.
It was inevitable, but ironic in the way it came about. It is probably the reason India and China support Russia and refuse sanctions. It is part of a bigger plan for their emerging economies.
Most likely Russia will next announce a sizeable discount of 25% on crude oil, as they did with India, for exchanges paid with rubles.