This will be the last article I'll right on the subject of the rubles for gas deal that went into effect on April Fool's of 2022—until something dramatic happens. As far as the dramatic event that has already happened (the emergence of the ruble as the world's only energy-backed currency) the picture was fuzzy at first but has by now come into very sharp focus. Russia's plan is as simple as it is brilliant: the EU nations (a.k.a. "unfriendly nations" in contemporary Russian official terminology) may continue to pay for gas in euros; all they have to do is open specific (K-type foreign currency) bank accounts in a specific Russian bank (Gazprombank, which is not under any sanctions). Gazprombank will then exchange these euros for rubles on Russia's internal foreign currency market and deposit the proceeds (if any) into corresponding (K-type ruble) accounts. It will then transfer these rubles to Gazprom, which will then let flow a corresponding quantity of natural gas. Superficially, nothing has changed; the Europeans are still paying for Russian natural gas in euros and the rest is some Byzantine Rube Goldberg that Putin has thought up and makes no difference to anyone but him. Right? Wrong! This is a trap! Please allow me to explain.
Before launching into a detailed discussion, there is a certain fact that you need to take on board: Europe has no replacement for Russian natural gas, or oil, or coal, or fertilizer, or nickel, or a host of other things. If Europe wishes to remain industrialized and semi-civilized, then it will need to continue to trade with Russia. On the other hand, there is very little that Russia needs from Europe, having worked hard on import replacement for eight years now, and that explains why Russia's response to the recent "sanctions from hell" has been little more than a shrug.
At this point there just aren't that many curve balls that Europe can throw at Russia that Russia can't throw right back. For example, Germany's Bosch stopped exporting automobile ignition control systems to Russia; it took Russian industry two weeks to come up with a domestic alternative. It doesn't comply with Euro 5 emissions standard, but that in itself is a joke: there is a booming cottage industry within Russia for changing the firmware of Bosch units to Euro-nothing to get better performance and fuel economy.
To summarize: Europe won't have a replacement for Russian energy, not now, not in 10 years; instead, having wrecked its trade relationship with Russia through the use of sanctions and other offensive techniques, it will be forced to earn rubles to get the energy it needs to survive.
The first point of genius in Russia's plan is that superficially nothing changes except how the money is routed. Russia still receives euros from Europe; it's just that these euros go to Gazprombank instead of Gazprom. Well, that sort of makes sense on the face of it; one is a bank that handles money with which to buy gas, the other is a gas company that handles the actual gas; both are owned by the Russian government. This all seems like an internal accounting change, allowing European leaders to save face by claiming that they are still paying for gas using euros which their central bank can print in any quantity required. Also, the Europeans can move to freeze Russia's euro-denominated bank accounts at any time, essentially confiscating Russia's earning from natural gas sales (as they have already done). That is, the Europeans can continue steal Russia's resources all the while remaining in moralistic high dudgeon over "Russian aggression" of some other propaganda item they've concocted for internal consumption.
In reality, when the Europeans transfer their euros to Gazprombank, they lose sovereign control over these euros. Their jurisdictional control ends with their signing of a brokerage agreement with Gazprombank. All they can do from that point on is allow the sales of euros for rubles to proceed, or thwart it (if they wish to be stupidly self-defeating). Assuming that they actually do want to get some natural gas for their euros, all will proceed as planned and Gazprombank will, acting in good faith, attempt sell their euros and buy rubles on the Moscow exchange. Whether or not it succeeds is an open question. It is an internal exchange regulated by the Russian central bank. Various entities come to this exchange offering to buy euros for their rubles and Gazprombank will accept their offers and use the exchange's mechanism to perform the exchange under the watchful eye of the National Clearing Center.
Now, it bears asking, who might be these entities that would wish to exchange massive quantities of rubles for euros? Would they perhaps be currency speculators? Well, speculators generally trade using leverage and would first need to borrow the rubles to sell, then make a profit by doing something with the euros they get. The Russian central bank has set the interest rate at 20%, making such loans prohibitively expensive, for the express purpose of freezing out speculators. Rest assured, enterprises engaged in infrastructure projects, import replacement projects, and socially significant endeavors down to providing discounted-rate mortgages for families with multiple children, pay a much lower, government-subsidized rate. Some of these entities might need euros from time to time to import certain key items from the Eurozone, but not in the quantities required to cover all of Europe's needs for Russian natural gas.
Would they perhaps be Russian corporate or government entities wishing to accumulate reserves in euros? Well, thanks to the sanctions, the euro is no longer a reliable store of value (it can be confiscated at any time and for any thought-up reason) and also because of very high Eurozone inflation which has already reached double digits in several countries. Holding euros while Russian is definitely a fool's game at this point, so this category of euro-buyers probably does not exist at all. Russian oligarchs who recently had their megayachts and European mansions confiscated are even less likely to ever go anywhere near any of that stuff again.
But the euro is still a fairly common medium of exchange for buying various European products that have not been blocked by sanctions. It would be pointless to use these euros to invest in something that stays within the EU jurisdiction since the Europeans have been flouting private property rights of Russian entities, so these would have to be things that can be crated up and physically hauled off to Russia. That seems like the only remaining way to raise the requisite amount of rubles.
A typical scheme might be this: a Russian corporate entity gets a big bank loan at a subsidized rate of interest for the express purpose of import replacement. It then buys euros from Gazpombank and uses them to buy some piece of German industry that's being forced to shut down due to the very high costs of energy—Siemens, or BASF, or BMW, or whatever else they have left—crates it up, hauls it off to Russia, and sets it up making whatever these German companies used to make, except much more cheaply. Keeping in mind that labor, energy prices and raw materials prices, land prices, taxes and the costs of doing business in Russia are very low compared to the ones in Germany, this would make these previously money-losing production lines quite competitive. They would begin supplying Russia's internal market and producing some for export. They could also provide employment to the German workers who used to run this equipment.
What if the Europeans do not wish to go along with this plan? There are several jumping-off points. The first and simplest is for them to refuse to file the paperwork to open K-type accounts at Gazprombank. Then, according to Russian law, they would be in breach of contract after their next payment for natural gas came due, which they would miss. They would not continue receiving natural gas and would owe penalties to Gazprom. They could then scratch their heads for a bit, pay the penalties and sign a new contract with Gazprom, which would now be priced in rubles.
The second jumping-off point is to continue to impose enough sanctions and other restrictions on Russia so that demand for euros within Russia collapses and it becomes impossible for Gazprombank to get enough rubles to pay Gazprom for the needed quantities of natural gas. Then Europe would get less gas and would have a compelling argument for trying to stimulate demand for euros within Russia by easing sanctions and other such accommodative measures. This would get Europe past denial and to the bargaining stage, where the Europeans will need to realize that they won't get what they want until they learn to earn rubles by doing what Russia wants of them.
If the Europeans come to understand in time what they need to do to survive the next winter (and time is of the essence here because to fill storage to the requisite 75-80% level by November the gas has to continue to flow) then they might have a further realization: that paying Gazprombank's brokerage fees for exchanging euros for rubles is not as efficient as earning rubles and paying Gazprom directly, bypassing the excellent but expensive services of Gazprombank. Instead of paying Gazprombank, they could set up their own entities to match Russian gas importers with companies that export to Russia and handle the exchange internally.
It will be interesting to watch the various European political nonentities trying t navigate the mine field they have set up for themselves while thinking that it was for the Russians. Most of them lack the common sense to understand their predicament, having been specifically trained to serve as fronts for the American deep state and banking cartels. Few of them have what it takes to realize the error of their ways, stop being rabidly Russophobic and start doing what they need to do to survive. They are unlikely to be helped by their supposed constituents who will do little more than protest and demand that the government continues to provide for their ample needs.
It remains an open question whether any of them will ever arrive at the realization that their real enemy is not Russia (which gives them energy) or China (which gives them all sorts of manufactured goods) but the US, which gives them insecurity, has no further use for them and is not above letting them die just to thwart Russia and China. In the view of the US, the EU is worse than an enemy; it is a competitor for scarce and dwindling resources. It is also fat, soft and squishy and run mostly by idiots—an ideal final victim for the crumbling altar of American world domination.
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