Most countries of the Eurasian Economic Union (EAEU) switched to paying for gas in rubles. The Minister for Energy and Infrastructure of the Eurasian Economic Commission Arzybek Kozhoshev announced the agreement. At the moment, Russia, Belarus, Armenia and Kyrgyzstan agree to pay for gas in this way. In Kazakhstan, the decision is still being considered. What consequences for the Russian economy will this decision lead to and whether they will pay for other goods in rubles – in the material of Izvestia.
Right on course
The possibility of settlements in national currencies was agreed at the end of summer at the summit of the EAEU countries in Cholpon-Ata (Kyrgyzstan). The decision was made to reduce dependence on the dollar and create an independent payment structure. The transition to paying for gas in rubles within the framework of the EAEU looks like a logical step that is long overdue, and given the increase in geopolitical and economic risks, this measure, in fact, has no alternative, says Alexander Korolev, researcher at the Center for Comprehensive European and International Studies at the National Research University Higher School of Economics.
— In addition, this initiative logically fits into the plans to create by 2025 a single market for gas, oil and energy resources within the EAEU and a single financial market – also by 2025. Moreover, de-dollarization, in particular the increase in settlements within the Union in rubles, is a steady trend in recent years: since 2015, this figure has grown from 68% to 74% in 2020.
From an expert’s point of view for the Russian economy, such a transition means the creation of additional mechanisms for hedging financial and currency risks in the context of an unprecedented increase in sanctions pressure and attempts to smooth out the macroeconomic disruptions that will inevitably occur in the future.
Photo: Izvestia / Pavel Volkov
“Apparently, in the foreseeable future, we should expect a transition to ruble settlements for other products that are important for the EAEU and specifically Russia: oil, metals,” he continues. — This, in particular, was stated by the Eurasian Economic Commission in August 2022. A larger and longer-term goal is to create a unified “Eurasian” payment system in addition to the unified exchange space, which is also planned for full implementation in 2025.
In addition, Korolev explains, in the context of escalating geopolitical tensions it is important to promote mutual settlements in national currencies and with leading foreign partnerswith which either there are already trade and economic agreements (non-preferential or FTA), or negotiations are underway – China, Vietnam, Iran, India, Indonesia.
The economy will decide
The ruble is currently one of the most stable world currencies, backed by real assetssays Yulia Makarenko, Deputy Director of the Banking Development Institute.
— Acceptance of payments for gas in rubles is an experimental testing ground. They monitor how banks and currency control are coping, if there are any interruptions. When the system is finally debugged, then it is logical to apply this practice to other areas of trade,” she explains.
Photo: TASS/Nikolay Trishin
According to the expert, it is most realistic to introduce payments in rubles for the main groups of goods.
— First of all, in addition to gas, it is oil, coal, fertilizers, and possibly food (cereals). Most likely, initially friendly countries to Russia will agree to settlements in rubles. And then the restfor whom these resources and food will be vital. Despite the loud statements of politicians, it is unprofitable for anyone to anger their own citizens by raising the prices of basic goods or provoking shortages. The economy will eventually put everything in its place,” sums up Yulia Makarenko.
There is a global task set by the President of the Russian Federation: to transfer the trade in resources into rubles. The process started with gas settlements, explains Artem Tuzov, Executive Director of the Capital Market Department of IC IVA Partners.
— The very mechanics of such payments for gas in rubles is well developed. Considering that Gazprom’s European partners have switched to it, there will be no problems with its implementation. In general, this approach strengthens the interdependence of the EAEU countries and reduces their dependence on the US and the EU. This can be considered a positive outcome. The payment scheme is suitable for all countries. So gradually, after the EAEU countries switch to this scheme, the SCO states can switch to it. Political issues are not discussed here, rather, the matter is in the timing of the expiration of old contracts, which featured currencies other than the ruble, the expert notes.
Photo: TASS/Kirill Kukhmar
According to the analyst, the next commodity, which can be traded for rubles, may be wheat.
— In March of this year, the Russian Union of Grain Exporters approached the Bank of Russia with a proposal to develop a mechanism for settlements with foreign buyers of Russian grain in rubles. The largest buyers of Russian grain – Turkey, Egypt, Iran and Saudi Arabia – did not join the sanctions and, for the sake of their own food security, may agree to switch payments for rubles. The disadvantage of transferring payments for exported resources to rubles may be the strengthening of the ruble, which the export itself will make less profitable. But there will be wide opportunities for imports.
By the right of the strong
So far, we are talking about four EAEU countries out of five: Russia, Belarus, Armenia and Kyrgyzstan, recalls Olga Belenkaya, head of the macroeconomic analysis department of Finam.
— The fifth country, Kazakhstan, may switch to paying for energy in rubles in the future. For the Russian economy, this does not mean so much – the ruble in the calculations of the EAEU countries already accounted for more than 70%. Wherein EAEU countries accounted for less than 10% of Russia’s foreign trade turnover in 2021. Now for Russia and Belarus, the relevance of the transition to national currencies has increased due to Western sanctions, which significantly complicate external settlements in dollars and euros, she says.
Photo: Izvestia/Eduard Kornienko
According to the expert, stability and liquidity of the currency are the most important here.
— Since the economies and currencies of Belarus, Armenia and Kyrgyzstan are much weaker than the Russian one, it is logical to switch to the ruble in settlements with them. Also recently, the presidents of Russia and Turkey, where the lira is highly volatile, agreed to partially pay for gas imported by Turkey in rubles. In Russia’s settlements with non-CIS countries, one can rather expect a transition mainly to the yuan, and more exotic options are possible, such as the UAE dirham or the Hong Kong dollar, she concludes.
A way to avoid sanctions
Reducing the share of the dollar and the euro in mutual settlements of the EAEU countries is one of the fundamental strategic tasks of the association, identified even during the period of the organization’s work in the EAEU format, believes Sergey Rekeda, Associate Professor of the Basic Department of Eurasian Economic Integration of the Institute of Law and National Security of the RANEPA under the President of the Russian Federation.
“Therefore, one should not think that this is a plan that appeared only after February of this year. So, for example, over the period from 2012 to 2018, according to the Eurasian Development Bank, the share of the Russian ruble in the currency structure of payments in the Eurasian Economic Union increased from 56% to 75%. The share of the dollar over the same period decreased from 35% to 19%. Consequently, this process has developed independently of the sanctions. Another thing is that the current international situation has become a catalyst and has raised the question not just of minimizing the share of the dollar and the euro in the trade operations of the Eurasian five, but of almost completely abandoning them. For the Russian economy, this means uninterrupted operations and the safety of own funds in the accounts, for our allies it means the ability to avoid secondary sanctions when interacting with Russia,” he said.
Photo: RIA Novosti / Mikhail Klimentiev
As the speaker notes, in the face of sanctions pressure, there is an urgent need to form our own closed financial zone, which includes several countries.
— Here we run into the objective limitations of the EAEU. To implement such a task, the forces of the EAEU alone are not enough. It is required to connect the resources of the SCO and BRICS, meetings on interaction and confidence building measures in Asia. Some of the countries that are members of these organizations have already expressed their readiness to partially switch to payments in rubles, and this process will probably develop further,” Sergey Rekeda sums up.