G7 Refuses Gas Payments in Rubles... Russia Likely to Struggle Defending Exchange Rate

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hyunjung] The Group of Seven (G7) agreed on the 28th (local time) to reject Russia's demand for gas payments in rubles. The ruble, which had rebounded in value due to expectations of Russian regulatory measures and gas payment demands, is expected to decline further.

On the same day, major foreign media reported that Robert Habeck, Germany's Vice Chancellor and Minister for Economic Affairs and Climate Action, told reporters, "G7 energy ministers unanimously agreed that this is a clear and unilateral violation of existing contracts."

After a video conference with G7 energy ministers, Vice Chancellor Habeck emphasized, "We cannot accept payment in rubles," adding, "We will urge affected companies not to comply with Russian President Vladimir Putin's demands." He further stated, "G7 countries are prepared for all scenarios, including a potential disruption of Russia's energy supply."

Earlier, on the 23rd, President Putin chaired a cabinet meeting and announced that Russia would only accept payments in rubles for natural gas sold to unfriendly countries such as those in Europe. Economic experts analyzed this measure as an attempt to defend the ruble's value, which plummeted following Russia's invasion of Ukraine.

In fact, the ruble's value was 99 rubles per dollar, down 17% compared to just before the Ukraine invasion on the 24th of last month, but it has successfully defended against the sharp drop to 151 rubles on the 7th.

[Image source=AP Yonhap News]

The defense of the exchange rate is a result of Russian authorities' intervention. The Wall Street Journal (WSJ) assessed that the recent ruble exchange rate situation is due to Russian regulations. Russia has banned residents from exchanging foreign currency for six months and limited the amount residents can withdraw from foreign currency accounts. Foreign investors in the Russian stock market were prohibited from selling stocks. This physically blocked sudden capital outflows.

Experts predict that the ruble's value will eventually converge to its market value. Robin Brooks, an economist at the Institute of International Finance (IIF), said, "The ruble is not currently at a normal market price," and added, "If it were freely traded in both directions, it would be much weaker than it is now."

Moreover, if European countries' plans to reduce dependence on Russian energy are implemented, Russia's foreign currency inflows are expected to decrease in the mid to long term, leading to further declines in the ruble's value.

Germany recently announced plans to rapidly reduce its energy dependence on Russia, stating that it will stop receiving gas from Russia by mid-2024 and reduce oil imports to a level of 'almost independence' by the end of this year.

This content was produced with the assistance of AI translation services.