More Sanctions on Russia Will Destroy Europe
On February 21 Russia announced that it would recognize the Donbas republics. A day later it did so. The ‘west’ immediately announced sanctions which in fact had been prepared in advance. On February 24 Russian troops crossed the border into Ukraine.
The Russian ruble immediately took a big hit. It has since recovered a bit.
Today’s news will bring the ruble to a new heights.
Kommersant reports (machine translation):
Putin instructed to convert gas contracts with unfriendly countries into rubles
President Vladimir Putin instructed to issue a directive to Gazprom to convert contracts into rubles for unfriendly countries. In his opinion, supplying Russian goods to the EU, the USA and receiving payment in dollars and euros “does not make any sense for us.” Against this background, the ruble moved to growth on the Moscow Exchange.
“Both the US and the EU have basically defaulted on their obligations to Russia. And now everyone in the world knows that obligations in dollars and euros may not be fulfilled. <…> It is quite obvious that in this regard, it makes no sense for us to supply our goods to both the EU and the USA and receive payment in dollars, euros and a number of other currencies. Therefore, I have decided to implement in the shortest possible time a set of measures to transfer payments for our natural gas supplied to unfriendly countries to Russian rubles,” Mr. Putin said at a meeting with the government.
The President instructed the Central Bank and the government to determine within a week the order of operations for the purchase of rubles on the domestic market by buyers of Russian gas. He claims that Russia will continue to supply gas “in accordance with the volumes and according to the pricing principles concluded in the contracts.”
The dollar exchange rate on the Moscow Exchange fell below 100 rubles. for the first time since March 3rd. As of 15:37, the US currency is trading at 101.55 rubles. (-2 rubles). The euro exchange rate fell by 2.85 rubles to 111.65 rubles. The maximum dollar fell to 94.99 rubles, the euro – to 109.7 rubles.
The European Union, the United States, Great Britain and a number of other countries have imposed sanctions against Russia in response to the military operation in Ukraine, which has been carried out since February 24 on the orders of Mr. Putin. One of the measures was the freezing of about half of the Central Bank’s gold and foreign exchange reserves ($300 billion).
To pay in ruble one first has to buy rubles. With higher demand for rubles and no change in supplies the price for the Russian currency will go up. As Russia is selling hydrocarbons and other resources for billions of dollars per day the ruble is likely to soon reach record heights.
On February 28 another round of sanctions hit Russia. The part of the Russian central bank reserves that were stored in the ‘west’ were frozen. The central bank immediately pushed its interest rate from 9% to 20% to prevent a flight from the ruble. This helped to lessen the damage but made credit expensive and has hit the future growth potential in Russia.
But with a high new rubles demand from the outside of Russia the central bank will soon be able to lower its interest rate to more normal levels. Credit conditions will ease and investment in Russia, to replace products that had so far been imported, will rise again.
Today’s move to demand rubles for hydrocarbons is only on of the many steps Russia can, and likely will take, to retaliate for sanctions from the ‘west’.
As I wrote previously:
All energy consumption in the U.S. and EU will now come at a premium price. This will push the EU and the U.S. into a recession. As Russia will increase the prices for exports of goods in which it has market power – gas, oil, wheat, potassium, titanium, aluminum, palladium, neon etc – the rise in inflation all around the world will become significant.
Meanwhile the New York Times writes:
As he heads to Europe, President Biden will press U.S. allies to help impose even more aggressive sanctions on Russia.
Biden demands that Europe suicides itself while he is protecting the U.S. industry. I hope that some people in the European capitals are still able to think clear enough to recognize the racket the U.S. is trying to run here:
Together with the economic devastation that U.S. and European sanctions on Russia are causing in their own economies this will end in regime-changes in several European countries. The U.S. is of course again protecting itself from as much as it can at the cost of others.
Source: Bloomberg – bigger
Tony Wood asks:
The question remains, why did all those who for so long foretold this war do so little to stop it, and so much to hasten the disaster Russia has now set in motion?
Indeed. Why didn’t the government of Germany guarantee in writing that it would veto any additional NATO membership? It would have solved at least half of the problem. Why didn’t any other NATO government do so?
And what are they doing now? Where are their initiatives for peace?
Wake up. Otherwise this will end in disaster. Not for Russia but for the rest of Europe.
Reprinted with permission from Moon of Alabama.
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