Russia will start selling gas to "unfriendly" countries in rubles after Moscow's trust was shaken by foreign nations as Russian assets were frozen, President Vladimir Putin announced Wednesday.
European countries' dependence on Russian gas and other exports has been thrown into the spotlight since Russia sent tens of thousands of troops into Ukraine on Feb. 24 in what it called a special operation to degrade its southern neighbor's military capabilities and root out people it called dangerous nationalists.
"Russia will continue, of course, to supply natural gas by volumes and prices...fixed in previously concluded contracts," Putin said at a televised meeting with top government ministers.
"The changes will only affect the currency of payment, which will be changed to Russian rubles," he said.
Putin said the government and central bank had one week to come up with a solution on how to move these operations to the Russian currency and that gas giant Gazprom would be ordered to make the corresponding changes to gas contracts.
As of Jan. 27, Gazprom's sales of natural gas to Europe and other countries were primarily settled in euros, at approximately 58%.
"An understandable and transparent procedure of making payments should be created for (all foreign buyers), including acquiring Russian rubles on our domestic currency market," Putin said.
Ukrainian forces have mounted stiff resistance to Russia's actions and the West has imposed sweeping sanctions on Russia in an effort to force it to withdraw its forces.
Ruble firms past 100 vs. dollar after switch
The Russian ruble briefly leaped to a three-week high past 95 against the dollar on Wednesday in Moscow, before settling close to 100, after Putin said Russia would start selling its gas to "unfriendly countries" in the ruble.
The potential ramifications of that move, which Putin ordered his government to sort out in one week, could boost the Russian currency, with a host of European countries still dependent on Moscow for much of their energy supplies.
By 1:13 p.m. GMT, the ruble was 3.4% stronger against the dollar at 100.02, earlier clipping 94.9875, its strongest since March 2. It had gained 3.5% to trade at 110.50 versus the euro.
The ruble had stabilized near 105 to the dollar in recent sessions after falling to a record low of 120 in Moscow this month and even further on the interbank market to 150.
Russia has taken a hit from unprecedented Western sanctions over events in Ukraine, what it terms a "special operation," that started on Feb. 24.
Before that, the ruble traded at about 80 to the dollar.
Trading in OFZ bonds resumed this week, and the Bank of Russia announced some stock market trading would resume on March 24 after a near monthlong hiatus, with 33 securities included into the benchmark IMOEX index set to be traded on the Moscow Exchange for a limited period of time and with short selling banned.
Coupon payment
Russia appeared to have averted default on foreign debt by making a coupon payment on a sovereign eurobond, maturing in 2029, in U.S. dollars. A bondholder said the payment had been received.
But Russian holders of domestic corporate eurobonds face delays in receiving payments settled through international agents, as transactions get snarled up by sanctions, Russia's National Settlement Depository (NSD), companies and analysts said.
Demand for ruble liquidity has declined as the central bank sold 0.8 trillion rubles ($7.7 billion) at a one-day "fine-tuning" repo auction on Wednesday, lower than in previous days.
"Demand at overnight repo auctions is falling fast," Veles Capital brokerage said in a note, explaining that even though banks' liquidity levels have fallen to their lowest since June last year, lenders are repaying previous repo debts to the central bank.
OFZ bonds steady
Trading on the OFZ bond market continued for the third day after it was shut in late February.
The central bank said last week it would begin buying OFZ bonds to limit volatility after it held its key interest rate at 20% in the wake of an emergency rate hike in late February.
The central bank has so far not disclosed the size of its interventions on the OFZ market that helped stabilize prices and provided extra liquidity to the financial system.
Yields on benchmark 10-year OFZ bonds, which move inversely to their prices, stood at 13.90% on Wednesday after hitting a record high of 19.74% on Monday.