The Complexity of European Payments for Russian Oil and Gas: Impact of Currency Exchanges
European countries exchanging Euros for Rubles to pay for Russian oil and gas raises an interesting question: what impact does this have on the Russian economy, especially given that the Western sanctions prevent Russians from freely using these Euros?
Understanding the Exchange and Impact
When European countries exchange Euros for Rubles, the demand for Rubles will indeed increase, reflecting positively in the exchange rate. This would imply that Russia would have to pay a lesser amount of Rubles to meet its import costs. However, the effectiveness of this strategy depends on the ability of these Euros to be freely exchanged into Rubles. If Europeans pay in Euros, and Russians cannot use these Euros freely due to Western sanctions, then the beneficial impact on Russia would be minimal.
How Russian Firms Benefit
Russian firms that sell oil and gas to European buyers receive guaranteed funds that the West cannot seize. However, the intricacies of the exchange process and the role of sanctioned banks come into play. European payments for oil and gas with Rubles necessitate obtaining these Rubles from European banks, which, in turn, must swap Euros for Rubles with Russian banks.
Exploring the Regulatory Landscape
European sanctions restrict transactions with Russian banks. Hence, if European countries pay for oil and gas in Rubles, they need to procure these Rubles via their banks, which then exchange Euros for Rubles with Russian banks. This move aims to force European countries to violate their own sanctions on Russian banks, potentially rolling back these banking restrictions.
Step-by-Step Analysis
To understand the process more clearly, let's break it down step-by-step using a hypothetical example:
Merkel Inc purchases GAS from GAZPROM in Russia via Pipeline GAZPROM issues a payment Bill to Merkel Inc after 30 days Merkel Inc opens two accounts: a Euro account and a Ruble account with GAZPROM Bank in Hamburg and Moscow respectively Merkel Inc credits Euros, the payment for Gas, into its own GAZPROM Bank Euro account in Hamburg GAZPROM Bank Hamburg requests a loan in Rubles from the Russian Central Bank using the Euros deposited in Merkel Inc's account in Hamburg Russian Central Bank credits Rubles into the GAZPROM Bank Moscow account of Merkel Inc as a loan, using the Euro deposit in Merkel Inc's Hamburg account The Ruble payment is transferred from Merkel Inc's GAZPROM Bank Moscow account to GAZPROM's bank accountFrom this, it is clear that Merkel Inc is paying in Rubles to GAZPROM, with the final credit being in Rubles from an account of Merkel Inc. This process is akin to a Russian Hawala system, where the Euros are used to secure a loan in Rubles, thus being converted into a debt rather than remaining as a deposit.
Even if Germany freezes the Euros, they are freezing their own money. This means that GAZPROM has already been paid in Rubles, which is a significant strategic advantage amidst Western sanctions.
Conclusion
The European payment for Russian oil and gas in Rubles via exchange with Euros highlights the complexity of international transactions under sanction regimes. It showcases the ingenuity of bringing about economic leverage through meticulous financial maneuvers, thereby bypassing the immediate effects of Western sanctions.