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Europe freaks out over rubles

From 31 March 22, oil and gas can only be purchased in rubles. Somehow this means that the rubles is pegged to gold, using paper rubles as a proxy. I cannot make this logic out.
March 31, 2022

Europe freaks out because Putin wants Rubles for his exports

The  RF Central Bank pegged 1 gram of gold to 5000 rubles (about $50 USD).

The current rate  PER GRAM 30 Mar 22 16:00 is US$62; ZAR 900 ; Ruble 5 555

The current rate PER OZ 30 Mar 22 16:00 is US$1931; ZAR27 950 ; Ruble 172 600

1ZAR = Rub 6: 1US$ = Rub 90

From 31 March 22, oil and gas can only be purchased in rubles. The ruble has been pegged to gold, using paper rubles as a proxy.

Europe will need to either buy rubles in gold, or they will have to buy directly in gold. Which means, there will be a lot more demand for rubles.

Currently, the forex rate for rubles to dollars is about 100:1. See my notes above But with 5000 rubles now equaling 1 gram of gold, and oil being priced directly in gold – there will be a price disruption in terms of how much gold a dollar can actually buy. The reality, is that Russia is making it’s gold available at a discount, to encourage buyers of oil, etc… to make the change!

Countries holding dollar debt notes will see less use for them and want to  dump them, in order to get something which holds value better. This will have a deflationary effect on rubles.

Russia will be able to re-peg the ruble to gold at whatever rate down the line – 5000 today, tomorrow 500.

The excess dollars being dumped are about to cause hyperinflation….for the holders and the USA.

Weaponizing Russian Energy – here is another take on the situation

Excerpts of Martin Armstrong article.   30 March 22

Russia will stop accepting payments in dollars and euros from “unfriendly countries.” India is on board and willing to change to a SWIFT alternative to easily convert rupees to rubles. “All G-7 ministers agreed completely that this would be a one-sided and clear breach of the existing contracts,” so they will not pay for gas in rubles, which they consider as unacceptable!

“G-7 will urge the companies affected not to follow Putin’s demand,” So now what

Russia will not give it’s gas and oil to Europe!

Europe’s pipeline systems are largely connected so it is difficult to cut off flows to individual nations within the continent. Gazprom, the largest supplier of gas from Russia, has been notified. The company provided “unfriendly countries” with around 70% of exports in 2021 totalling $69 billion.

The contracts are already in order. “I want to emphasize that Russia will definitely continue to supply natural gas in line with the volumes and prices and pricing mechanisms set forth in the existing contracts,” Putin said as he knows that gas exports are essential to the Russian economy.  

This has become a cat and mouse game. Putin says correctly that it makes no sense to sell Russian exports for US$ and €, but the contracts have payment terms, in other currencies.

Europe still imports 40% of gas and 25% of oil from Russia. Since the Kremlin is open to all possible outcomes, Europe is preparing for gas shortages. Germany, the largest importer of Russian gas, has asked some energy companies to be aware of possible shortages. The current contracts in place should be safe if Putin keeps his promise, but then a real problem will arise.

Watch this space, because I expect a seismic shift somewhere, and somehow I do not think Putin will be the loser!!