Putin's push for ruble payments for natural gas exports not strictly about economics, experts say

A demand that Russia bepaid in rubles for its natural gas exports appears to bedriven by a mix of domestic and geopoliticalfactors that go beyond strict economic concerns,experts say.

Western sanctions enacted since Russia's invasion ofUkraine on Feb. 24 have put sustained pressure on its economy.Butthe war hasn't haltedRussia'snatural gas exports to Europe nor the wider continent's dependence onthem.

That intertwined relationship is at the crux of the recent demand fromRussian President Vladimir Putinfor "unfriendly" countries to pay for their gas in rubles.

"This is an unorthodox gambit that hinges on European reliance on Russia's natural gas exports," Eswar Prasad, the Tolani Senior Professor of Trade Policy and professor of economics at Cornell University in Ithaca, N.Y., said in anemail.

Demand and also concerns

Russia is Europe's largest supplier of natural gas, delivering about 40 per cent of what Europe consumes. This dependence is longstanding as are concerns about the arrangement.

Pierre Nol, a global research scholar at Columbia University's Center on Global Energy Policy in New York, points out that the majortensions between Europe and Russiaare rooted inMoscow's foreign policy, as opposed to Russia's willingness to sell natural gas to its neighbours.

"Importing Russian gas has never in itself created any security issue," Nol said via email.

"The trouble is that Russia's foreign policy orientation became increasingly assertive from the early 2000s onwards. It's a problem Europe would have had even if it had not been an importer of Russian energy, and the energy relationship has not aggravated it."

There were calls for Europe to reduce its reliance on natural gas from Russiabefore the current war, butNolsaid "a strong consensus" has since emerged that things have to change. (The European Commission has released a plan to wean itself offRussian fuels, but the change would happen over years.)

"Europe has been very good at managing a large-scale energy relationship with a difficult Russia, but it does not feel like continuing it after this invasion," Nol said.

There have also been concerns that Putin's demand to be paid in rubles could presagean interruption of supplyto Europe though if that happened, Russia would lose out on those revenues.

"Putin needs the revenues as much as Europe needs Russia's natural gas, so this grandstanding will eventually be sorted out in some sort of compromise," Cornell's Prasadsaid.

Stefan Meister, head of the program on international order and democracy at the German Council on Foreign Relations in Berlin, said Russia is seeking "a kind of political victory,"not a halt to the flow of natural gas.

"It wants to show that Putin dictates the conditions under which it exports gas," Meister told The Associated Press.

Not a conventional strategy

Russia's stated demand for a shift in required payments has been met with pushback by European leaders, who saythey'll continue paying in U.S. dollars and euros.

The APreported on Friday that gas used for electricity and heating was still flowing to Europe, the same day that Russia said it would begin accepting payment in rubles.

Michael Devereux, a professor in the Vancouver School of Economics at the University of British Columbia, said he found the demand for ruble-based payments"a little bit puzzling," as Russia ultimately needs foreign currencyto be able to trade in world markets.

Prasadexpressed a similar view.

"Under normal circumstances, a country that is trying to prop up its currency and maintain imports from abroad would seek payments in hard currencies such as dollars and euros rather than its own currency," hesaid.

Russia's demand forrubles, Prasad said,would "do little" to obtain those same foreign currencies.

Both Prasad and Devereux said it seemed possibleRussia could be seeking to work around sanctions through its proposed shift in payments.

The ruble and its value inside Russia

The value of the ruble fell sharply after economic sanctions came into effect, but it has since returned to a level close to where it stood before the war.

Devereux said it's not clear if the value of the ruble stands where it would have if more open trade was taking placewith Russia meaning it may be "significantly overvalued" at this time.

"As a result,if the European importers have to pay in rubles, they could end up paying a lot more than they would otherwise," he said.

Perry Sadorsky, a professor of sustainability and economics at York University's Schulich School of Business in Toronto, said he sees the ruble and the perception of the ruble as being at the centre of the thinking behind the recentdemand.

"The decline in value of the ruble is problematic in Russia for consumer confidence and government support for the war," he wrote to CBC News.

"By stabilizing the ruble, Putin can show Russians the war is going welland inflation is under control."

Economic historian Kristy Ironside sees a potential double messageat play.

One part of the message conveys the fact that the ruble is not a worthless currency and also that Russia isn't dependent on access to U.S. dollars and euros.

"It's also saying to the domestic population: 'See? The ruble is rebounding,'" said Ironside, an assistant professor of Russian history at Montreal's McGill University.