Chart of the Day: EUR/RUB Could Enter Long-Term Downtrend On Natural Gas Demands

 | Apr 28, 2022 15:28

Yesterday's chart of the day examined the potential pricing changes Russia's suspension of natural gas deliveries to Poland and Bulgaria may have unless they pay for the energy commodity in rubles. Today's post looks at the likely impact on the Russian currency itself.

After its currency lost about 20% of its value at the start of Russia's invasion of Ukraine in late February, when NATO countries and other Western allies began leveling sanctions on Russia in retaliation for Moscow's aggression, the ruble has, surprisingly, recovered. That despite the fact that the RUB was pressured to an all-time low along with predictions the currency would continue sinking until a lasting ceasefire was in place.

The recovery was spurred in part by Russia barring its citizens from selling rubles to buy foreign currencies, which US Secretary of State Antony Blinken referred to as currency manipulation.

More recently, Russian President Vladimir Putin began demanding that customers of its natural gas, in particular European countries it supplies, must pay in rubles or see their energy supply halted. It's a potent threat given that 45% of European supply comes from Russia.

Yesterday, via Russian energy company Gazprom (MCX:GAZP), Moscow made good on that threat, halting exports to Poland and Bulgaria. Ostensibly the move was in response to increasing arms supplies to Ukraine from the US and its allies.

We, however, believe, the real reason is economic. Putin can only prop up his ailing currency for so long using his earlier tactic.

Though many fear Putin could escalate this move to include other European customer countries, the current move, along with any future escalation could hasten European initiatives to find other, less problematic suppliers.

For now, however, Europe's largest energy firms are falling in line, agreeing to buy the Russian currency with euros in order to pay for natural gas. Naturally, this move should boost euro-ruble, at the expense of the euro, at least in the shorter to medium term.

The EUR/RUB fell for a sixth straight day, the longest, most powerful losing streak for the pair we could find on the chart.