Last week, Vladimir Putin had an idea.
Like most of his ideas lately, it wasn’t a particularly good one.
With the ruble seemingly destined for obscurity and Russia constrained in its capacity to use any hard currency it receives from energy exports, he demanded all natural gas contracts be paid in rubles.
To be fair, Putin’s decree was logical assuming you can get past the fact that it wouldn’t have been necessary absent a wholly illogical decision he made three weeks previous.
Read more: Putin Demands Rubles For Gas, Refused Nabiullina Resignation
As I put it at the time, you didn’t need to know what, exactly, the contracts entailed to determine that Putin’s demand was sure to be a headache for someone, somewhere.
Fast forward a week, and the G-7 had an answer for Putin: No.
It’s a “clear breach of contracts,” German Economy Minister Robert Habeck complained, following a meeting he chaired (Germany currently enjoys the G-7 presidency). In case that was too ambiguous for Moscow, Habeck elaborated. “A payment in rubles is not acceptable,” he said. Western corporates were “urged” not to comply.
The G-7 rebuke sets up yet another standoff with Putin, who gave Gazprom and Elvira Nabiullina a March 31 deadline to make all necessary preparations for the transition. As I suggested in the linked article (above), the West wasn’t likely to be enamored with the idea of propping up a currency they’re trying very hard to undermine.
The idea is to engineer appreciation by forcing buyers of Russian gas to also buy the ruble. Putin (rightly) assessed that it’s nonsensical for Russia to accept payments for exports in currencies it isn’t allowed to use, but this particular gambit is apparently too absurd even for energy-dependent Germany to countenance.
Habeck, who last week outlined a plan to phase out Russian oil and coal in the near-term and Russian gas as quickly as possible, scoffed at the Kremlin on Monday. “The answer from the G-7 is clear: The contracts will be honored.” Olaf Scholz was equally adamant. “As I have already said, the contracts… are overwhelmingly in euros and the companies will pay them accordingly,” he told reporters in Berlin.
In an interview, Germany’s Finance Minister Christian Lindner said Berlin wouldn’t “accept any kind of blackmail. “We suggest private-sector companies stick to” euros and dollars, he added.
It’s probably for the better anyway. As Bloomberg dryly noted, “neither officials in the Russian government nor Gazprom executives have been able to shed light on how the surprise order will be implemented.”
The ruble rallied to within 10% of pre-invasion levels Monday, in a sixth daily gain. Of course, Putin instituted capital controls, so it’s scarcely worth mentioning.
From my armchair, I think Putin should
Withdraw Russian troops to the separatist portion of eastern Ukraine, Crimea, and a land bridge between three two, establish defensive positions, and declare glorious victory.
Shut off gas to Europe completely, throwing Europe into chaos and a deep recession, and demand sanctions be lifted in return for re-opening the taps.
Build sufficient pipelines to send the majority of Russian gas and oil to friendlier customers in Asia (China, India).
#1 because he needs to end the war with a “victory“, and seizing more of Ukraine can be presented domestically as such, even if risible outside Russia. Ukraine’s army will have a hard time dislodging Russian forces from established defensive positions with a friendlier local populace and shorter supply lines.
#2 because if Europe plans to end purchases of Russian gas and oil, why give them the luxury of doing it at a pace tolerable to them? Inflict as much economic damage on Europe as he can, plunge them into deep recession, and motivate Germany, Poland, etc to call for a cessation of economic hostilities.
#3 because Russian’s only hope now is to pivot hard to the East and build that Russia-China bloc that he has so clumsily endangered. The technology he can no longer get from the West can, eventually, be gotten from China.
This may not be a great outcome, but he is in a salvage and survive situation now.