On March 23, Russia’s President Vladimir Putin unexpectedly voiced a demand that henceforth all gas payments must be made in the Russian ruble.

The European buyers have already made it clear that they are not willing to submit to Moscow’s whim, with the G7 issuing a joint decision reiterating their stance.

In his article Empty Threats: What Consequences Will Russia’s Gas-for-Rubles Demand Bear, the head of the ICU group macroeconomic research department Vitalii Vavryshuk discusses Moscow’s plans in detail.

The sanctions imposed by the West forced the Russian President to issue the gas-for-rubles demand. This way, Moscow wants to create difficulties for its "unfriendly" trade partners and prove that both sides have leverage. 

Yet, despite the Kremlin's wish to prove its influence to the West, as a rule, its initiatives tend to backfire.

The current foreign currency payments for Russian goods are critical for the country and its financial system’s resilience.

Since the majority of Russia’s Central Bank’s reserves were frozen abroad, Russia requires an uninterrupted flow of dollars and euros into the state that would help its foreign currency exchange market and currency to remain stable.

Yet, even if the West submits to Russia’s ultimatum, the new payment arrangements will not fundamentally change the situation. The gas-for-rubles-demand will not in any way increase the volume of hard currency arriving in the country, meaning that if Russia sells gas for 1000 dollars, that is exactly what it will get.

What will change, however, is the money’s origin. Russia effectively wants Gazprom to receive rubles instead of euros and dollars. This means that foreigners will have to buy rubles from the internal Russian banking sector, with euros going directly to the banks (not Gazprom).

However, such a decision – except for feeding Russia’s sick ideas of superiority in a world where it has to fight off the ramifications of the painful western sanctions –   will not result in any tangible economic or financial benefits. 

Rather, it is an attempt to force western companies and banks to become customers of the Russian financial system, which is taking a heavy toll because of the sanctions. Therefore, many official representatives of the European states believe that Russia is trying to force the EU to circumvent its own sanctions.

It is also an attempt to create an artificial impression that the ruble’s role in world trade is increasing. Yet, Russia can only sell the idea of the indispensable nature of the ruble to small Asian and African states. Elsewhere it is impossible, with Slovenian PM Janez Janša sarcastically noting: "I don’t think that anyone in Europe knows what the ruble looks like. No one is going to pay in them."

Russia’s attempt is thus expected to fall through. 

Read more in Vavryshuk’s article in Ukrainian.