Following Putin’s announcement about selling gas for Rubles only to hostile nations, I decided to reach out to Michael Hudson and ask him (my level, primitive) questions.  Here is our full email exchange:

Andrei: Russia has declared that she will only sell gas to “hostile countries” for Rubles.  Which means that to non-hostile countries she will continue to sell in Dollars/Euros.  Can these hostile countries still purchase gas from Russia but via third countries?

Michael Hudson:  There seem to be two ways for hostile countries to buy Russian gas. One seems to be to use Russian banks that are not banned from SWIFT. The other way would indeed seem to be to go through what looks to develop as a formal or informal third-country bank or exchange. India and China would seem to be the best positioned for this role.  U.S. diplomats will be pressing India to impose its own sanctions on Russia, and there is a strong pro-U.S. constituency there. But even Modi sees the obvious superior benefits of benefiting from India’s geopolitical position with Russia and China’s Belt and Road Initiative relative to whatever the U.S. has to

Back in the 1960s the West dealt with the Soviet Union using barter deals. Arranging this barter became a big banking business. Barter is the typical “final stage” of the deterioration of a credit economy into a money economy that breaks down.  Over the medium term, a new international financial organization needs to be created as an alternative to the dollarized IMF to handle such intra-bloc transactions in today’s new multipolarizing world.

Andrei: These hostile nations would pay extra for that service, but they would not have to get Rubles.  Is that even possible?

Michael Hudson: Presumably Russia would not absorb the added bank costs of avoiding U.S. sanctions. It would simply add them on to the price, after setting the price at which it hopes to end up with – preferably at the original “old” ruble/euro or ruble/dollar exchange rate, not the post-attack depreciated rate.

Andrei: Question: Do you believe that the EU will agree to pay Roubles or will they take the total loss of 40% of their energy?

Michael Hudson: They will pay – or be voted out of office. If they WERE to cut their energy imports from Russia, the distress-price of gas would soar and there would be drastic shortages disrupting the economy. Energy is productivity and GDP. For Russia, of course, this is an opportunity to make the break now instead of later – and leave NATO to take the blame for the interruption of supply. So if I were Russia, I would not be in a hurry to help solve the foreign-payment problem. The same goes for non-oil raw materials, from neon to palladium to titanium, nickel and aluminum.

Andrei: So far, this applies only to natural gas.  Do you believe that Russia will extend this to petroleum, wheat and fertilizers and, if yes, what will the effect from this be for the world economy?

Michael Hudson: All Russian exports are affected by these currency controls, because all bank transfers are sanctioned in the way discussed above.  Russia has no use for dollars or euros, because these can be grabbed. It needs to have complete control over whatever monetary assets it receives, now that past norms of international law and financial policy no longer apply.

Andrei:  Russia has A LOT of natural resources and a lot of technologies/commodities.  If she is successful in her efforts to become paid in Rubles, could it be that the Ruble, which would then be a natural resources/ commodities backed currency, could become a major “refuge” currency.

Michael Hudson: I’m not sure what a “refuge” currency is, but the ruble will become a self-standing currency. If its balance of trade and payment improves, the problem may be to keep it from rising. If that happens, the question will be whether a rising ruble would oblige buyers of Russian exports to pay more in their own currency. A new multilateral financial system is in the process of being structured as we’re having this discussion. Will there be speculation? Forward selling? Short squeezes and Soros-type raids? Who will be the participants and under what rules …?

Andrei:  How hard a hit would this Russian decision potentially have on the dollar?  And MBS negotiating with the PRC for oil sales in Renminbi.   Do you think that China and Russia will bring down the Petrodollar and will we see a commodities-backed Ruble and a commodities-backed Yuan replacing the Dollar?

Michael Hudson: The petrodollar will remain between the United States and its allies. But alongside it, there will be the Saudi-yuan and India-yuan arrangements for trade in oil, minerals, industrial products and probably international investment. Trade in these products will be able to occur in a number of currencies, probably on a number of exchanges. It is not clear whether some formal or informal arbitrage may develop between these areas. That is part of what is to be designed.  To oversee and regulate the resulting financial and trade arrangements, an alternative to the IMF is needed. The U.S. will not join any organization in which it does not have veto power, so we will see a division of the world into different trading and monetary areas.  The result is not so much a conflict as two quite different operating philosophies as the non-U.S. world develops its alternative to financialized neoliberalism.

Andrei:  The US has basically stolen Russian gold and foreign currency.  The Russians claim that the US has shot itself in the foot and that this will ruin the reputation of the dollar, do you agree with that?

Michael Hudson: Absolutely: Iran after the Shah was overthrown, Afghanistan’s foreign reserves earlier this year, Venezuela’s gold held in the Bank of England, and now Russia. Even timid Germany has asked that airplanes begin flying its gold held in the New York Fed back to Germany!

Andrei: do you think that Russia will retaliate against the US/UK/EU and nationalize/seize their assets in Russia or even in countries friendly to Russia (China?)?

Michael Hudson: Russia is very careful to do everything according to international law – which, of course, has a wide variety of precedents and excuses, and whose courts tend to be dominated by U.S. judges backing U.S. versions of what is legal under whatever it announces to be the “rules-based order of the day” instead of the “rule of law” along UN lines.  To the extent that NATO investors abandon their assets in Russia, these may be sold – perhaps at a distress discount – to buyers who promise to maintain the business. Russia might impose severe fines for abandonment, as when landlords abandon buildings causing local expenditures on cleanup costs. Abandonment causes a “public nuisance.”

This would be a cause for immediate confiscation of current taxes, rent payments and salaries or payments for current supplies (including electricity and fuel) are not paid. Think what would happen if the gas bill were not paid and pipes froze and flooded a property. There is an entire world of penalties that could be applied.

International law provides for some recovery of assets wrongly confiscated – as the U.S. confiscations of Russian-owned reserves and personal property would seem to be. At this point Russia really has nothing to lose. It looks like there is not going to be much Russian-European cross investment for quite some time. Russia finally has given up on its hopes to “turn West” after 1991. It was a dream that turned into a nightmare, and President Putin and Lavrov have expressed their disgust with Europe acting in so uncivilized a matter. So for Russia – and increasingly other countries – NATO Europe and North America are the new barbarians at the gate. Russia is turning

That of course is precisely the aim of U.S. policy – to lock Europe into its own dollarized neoliberal order, blocking any mutual prosperity achieved by trade and investment with Russia or, behind it, with China.  It looks like today’s sanctions are permanent for the next few years. So of course Russia needs to keep formerly NATO-owned enterprises operating. Let the NATO investors recover compensation from what the United States has grabbed. (Hint: the U.S. may simply begin to grab China’s or Latin American or near Eastern reserves to pay NATO investors who have lost in Russia. That is the model of using Afghan money to pay victims of Saudi Arabia’s 9/11 attack two decades ago.)

Andrei:  finally, what question, if any, did I forget to ask and what would you reply to it?

Michael Hudson: Your questions are about specific problems and solutions. But the overall resolution needs to be system-wide, not patchwork. These specific problems cannot really be solved without a far-reaching institutional restructuring of the international financial system, world trade, a world court, and a UN without US veto power.  And such an institutional reformation requires an economic doctrine to provide its basic principles. A New International Economic Order will be constructed on non-neoliberal principles – along the lines of what used to be called socialism, when that was what people expected industrial capitalism to be evolving into.

Andrei: thank you so much for your time and expertise!!

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