Putin’s roubles-for-gas scheme could split Europe

Russia’s latest gambit in the Ukraine conflict is to open a currency war with the West. Vladimir Putin’s declaration that Russia will only accept roubles as payment for natural gas bought by ‘unfriendly’ countries is the latest salvo in the long-running attack by Russia and China on the petrodollar system.

The EU settles most of its gas purchases from Russia in euros or US dollars. Demanding western buyers switch to roubles is both offensive and defensive. It is clearly a desperate rear-guard action by the Kremlin to prop up the currency.

Sanctions freezing some $300 billion (£230 billion) of Russia’s foreign currency and gold reserves prevented the Russian central bank from supporting its currency. The rouble has fallen by as much as 40 per cent against the dollar since Russia invaded Ukraine, but recovered some of those losses this week. A big factor in that recovery was Putin’s demand for rouble-denominated gas payments.