Roving Periscope: How is Russia fighting back the West’s sanctions?

Virendra Pandit

New Delhi: Russia is ready to supply anything India needs; it has not turned off gas supplies to Europe since Friday as many feared, and it has bought back USD 1.45 billion worth of its Eurobond using roubles.

If the US-led West thought their sanctions would cripple the Russian economy, it is not happening in a hurry. Moscow may continue the war in Ukraine until its stated aims of re-establishing hegemony in Kyiv are achieved.

Of course, the 36-day-old, inconclusive conflict has cost Moscow heavily—an estimated USD 50 billion per day—but Russia is forging ahead relentlessly. It has shown its strategic depth and that it can leverage the vast natural resources other countries need for their survival.

On Thursday, the Kremlin said Russia will not turn off gas supplies to Europe on Friday. Rouble payments that Russia is insisting on for its gas exports will affect settlements due in April and May, the Kremlin spokesperson Dmitry Peskov said.

President Vladimir Putin signed an order on Thursday stipulating the change of currency, which European governments have called an unacceptable breach of contract, according to the media reports.

Also, Russia has bought back the bulk of the USD 2 billion worth of Eurobond using roubles and ensuring local investors dodge payment restrictions. Its Finance Ministry said it had repurchased the equivalent of USD 1.45 billion of Eurobond, or 72 percent of debt outstanding, due on April 4.

After Russia’s invasion of Ukraine on February 24, the US had tried to crash the value of Russia’s currency, the rouble. These attempts succeeded temporarily for a few days, but now the rouble’s value relative to the US dollar—around 81 roubles to a dollar—has not much plummeted: on Friday, it was 83 roubles to a dollar.

This has stunned western experts who thought the sanctions would cripple the Russian economy immediately.

Moscow carefully moved to turn the tables on the Biden Administration. Russia started demanding payments in roubles for the sale of oil and natural gas to ‘unfriendly nations’. Several countries in western Europe had no choice but to pay, as they depend on Russian gas. Payments in roubles have only strengthened the Russian currency. This is how Moscow has leveraged Russia’s in-demand resources to counter the sanctions.

Russia decided it will no longer accept US dollars as payment for anything they sell to other nations. So, Moscow does not recognize the US dollar as the form of international payments and will accept any national currency from buyers of its resources.

Also, Russia’s central bank has fixed the value of the rouble to the global price of gold for at least the next three months. It will restart buying gold from banks and will pay a fixed price of 5000 roubles (USD 60) per gram between March 28 and June 30, the bank said on Friday.

Thus, Russia is doing now what the US did decades ago: tying up the national currency directly to the global price of gold. It had helped the US dollar to emerge as the dominant currency. In the early 1970s, however, President Richard Nixon had taken off the gold standard, making the dollar vulnerable.

So, even if the Russo-Ukraine war stops, the dominance of the US dollar would no longer go unchallenged, the media reported.

On Friday, the visiting Russian Foreign Minister Sergei Lavrov said in New Delhi that Russia’s trade engagement in other nations’ currencies would help these countries move away from the US dollar-based payment system.

After his talks with External Affairs Minister S. Jaishankar, he said Moscow is exploring ways to bypass impediments to bilateral trade with its allies and partners. A rupee-rouble payment system for trade with India, started earlier, could be strengthened further.

He said they will do more transactions using different national currencies and bypass the US dollar-based system.

Asked about India’s plan to buy discounted Russian oil, Lavrov said Moscow is ready to provide anything that New Delhi wants to buy.

Applauding India’s independent foreign policy and its position on the Ukraine crisis, he said Moscow is committed to continuing with New Delhi its cooperation in the defense sector.