Dividends and ‘Unfriendly countries’ must pay for gas in rubles, Putin says

In the world of commodities, rules have been established over the years, first the dominate currency was the English pound, then it moved to the American dollar. In another century it might move to another currency, but the world accepts the traditions. Every commodity producing country would prefer the other countries pay for their goods in their currency, but we are not there yet.

In an article by Nina Chestney of Reuters invaded or stared a war with the Ukraine, one of the measures of the western world is to limit the financial system in Russia. No or very limited outside movement of money into or out of Russia. Countries would pay into an account which Russia would have access to once the war is over and sanctions are lifted.

Russia President said countries which are abiding by the sanctions would have to pay rubles for the gas which Russia sends into their countries (for example Germany in 30% user of Russian gas and Italy has been receiving 40% of their gas from Russia). In total Russia accounts for 40% of Europe’s consumption of natural gas or roughly $800 million of gas a day. The President reassured Europe he is not turning off the supply, the changes only affect the currency of payment.

The President order the government and central bank to come up with a solution within a week and Gazprom would be ordered to make the changes to clarify how they might pay for the gas. According to Gazprom, 58% of sales of natural gas was settled in euros, 39% in US dollars and 3% in British sterling.

Leon Izbicki an associate at Energy Aspects, said it was unclear how easy it would be for European clients to switch their payments to rubles given the scale or size of the purchases, however there is nothing in the sanctions in place that would prevent it.

Linking to dividend paying stocks, when countries sell outside their borders they have currency issues. In an ideal world the currency of the country outside the border does not fluctuate too much as it is a stable well run government. In reality elections happen, different governments do something which they think will benefit them and often times affects how currency traders see their currency. Companies pick a currency which allows them to hedge to keep stability in the exchange rates, when the amount becomes large it can affect profitability. As long as the company is making money on the sales and on the exchange, it can do business, if not then it has to ask are the sales worthwhile?

There are more questions than answers, till the next time – to raising questions.

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