The Russian Rouble Recovers After Announcement on Trading Russian Gas

March was not a good month for the Russian rouble. Since the beginning of the Russia – Ukraine conflict, the rouble has been steadily dropping, reaching historic lows. The sanctions imposed by the West had taken their toll on the Russian economy, including the strength of the rouble.

One attempted solution to stabilize the rouble and the Russian economy was turning to China. In particular, trade settlements between Russia and China were to be conducted in yuan at the expense of the US dollar. A new move by President Vladimir Putin follows the same principle.

Namely, Russia will start selling natural gas to “unfriendly” countries in roubles.

“I have decided to implement ... a series of measures to switch payments - we'll start with that - for our natural gas supplies to so-called unfriendly countries into Russian roubles,” Vladimir Putin announced in a televised statement, NPR reports.

“Russia will continue, of course, to supply natural gas by volumes and prices . . . fixed in previously concluded contracts . . . The changes will only affect the currency of payment, which will be changed to Russian roubles,” he added.

He further stated that the Russian Central Bank and Government have one week to determine how to switch the payments to the rouble and that Gazprom, the largest natural gas company in the world and the largest company in Russia, will be ordered to make the appropriate changes to its gas contracts.

This announced switch in policy has already had an effect on the rouble. While still volatile, the rouble went below 100 roubles per 1 US dollar, mostly hovering around 96, the strongest it has been since February.

The Moscow Exchange has also resumed equities trading in a limited capacity, the first time since late February, and the shares of Gazprom rose around 20%, while Lukoil and Rosneft shares were up around 19%. Trading in securities will also resume on Friday.

“We will do everything possible to open all segments of the stock market soon,” Boris Blokhin, head of the stock department of the Moscow Exchange announced.

However, not everyone is convinced that the reopening of the market will be a long-term solution.

“This is not a real market and not a sustainable model,” Daleep Singh, national security adviser for the White House said.

Whether the Russian government will manage to apply the announced changes to the gas trading policy and how strong the Russian stock market will be is debatable, as are the potential effects on the rouble.

The Russian rouble is traditionally a volatile currency and it is expected that its strength against the dollar and euro will continue to fluctuate. But what cannot be denied is that the rouble is currently experiencing a drastic recovery. We will keep you updated as the situation changes.