One on top of the other, one million and two hundred thousand rubles: Vladimir Putin paid that much (in cash or by credit card) for the Loro Piana jacket he wore at the stadium last week. The ruble is increasingly at the center of the Tsar’s financial counteroffensive, backing it with reinforcements of troops and assets that are setting Ukraine ablaze. After all, the invasion has a colossal cost. Aside from the ruble continuing to trade below one eurocent and certainly recovering, the news on March 23 is that Putin has ordered companies that export gas to be paid only and exclusively in rubles. Why are rubles better for Putin than very strong dollars and euros? Conversely, why is this bad news for us who buy gasoline?
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Trading with Russia has always been complicated, almost to the point of mocking barter: in Soviet times, if you sold something (let’s say tiles or technology) to CCCP companies, you didn’t make much from the rubles they could offer you to settle the statement. . In fact, they didn’t give you dollars or marks. So it was that for stoves or fabrics one was practically forced to get something less intangible than the ruble, perhaps a supply of coal, which then perhaps had to be sold in dollars to finally get a banging lira. Imagine the difficulty of making the tile coal dollar lira equivalents: a headache without forgetting the risks associated with the prices of these commodities.
Now President Putin says: “I have decided to implement a number of measures to transfer the payment of our gas supplies to enemy countries in Russian rubles,” Putin said at a government meeting. Putin ordered the changes to be implemented as soon as possible.
At first glance it seems like a contradiction, but then you have to ask yourself where there are now enough rubles to pay for gasoline. The answer is only one: you should be asked at the Central Bank of Russia, which is paid in hard currency (dollars and euros).
The fact is that from now on, by buying gas, the Russian state will be financed directly, and not the gasproducing companies (and it does not matter whether they are state or semistate). Huge injections of heavy money supporting the Russian economy during this very difficult period threatened with default.
Also because Putin has to periodically pay back foreign debts in addition to war spending. And here, in the past few days, another countermove has already come to offset the effect of the sanctions: Russia will pay foreign creditors of foreign currency bonds in rubles. But not all foreign creditors: according to the Moscow government’s actions, these are creditors of countries that have engaged in “hostile activities” against the country, who will be paid in rubles at the official rate of the central bank. The funds will be deposited in a special account with a Russian bank upon request, as clearing houses Euroclear and Clearstream, a traditional payment channel for bondholders, have blocked payments in rubles and the Russian government itself has imposed a capital check.
This flood of rubles also has the effect of strengthening the Russian currency against the dollar and the euro. something that materialized immediately.
As expected, gas prices rose immediately and equity markets suffered. Markets are suffering from rising oil and gas prices as measures to reduce dependence on Russia are explored. Investors are watching the progress of RussiaUkraine peace talks as the busy day on the international appointments frontline continues. The Stoxx 600 index fell 0.9%. The lists of technology shares are burdened (1.9%). Utilities were also poor (1.8%), with the gas price jumping to €119 per MWh and then falling to €115. In London, on the other hand, the Mmbtu price increases to 279 pence. Banks (1.5%) and insurance companies (0.5%) also do poorly. Energy flies (+2.1%), oil keeps running. WTI rises to $113 a barrel and Brent to $120. On the currency front, the euro is barely bouncing against the dollar at 1.0970 in London. The ruble is strengthening but remains weak compared to prewar trade in Ukraine. Currently, 100 rubles are required for one dollar. Supply slide in Piazza Affari with Irish (2.4%), Hera (2.9%). Stellantis (2.6%) and Nexi (1.9%) are also bad. Bad Banks with Intesa and Unicredit (2.3%).
Paolo Ricci Bitti