Pay in roubles or we’ll cut off your gas, Putin tells Europe

Berlin/London – Russia’s President Vladimir Putin is demanding foreign buyers pay for Russian gas in roubles from Friday or else have their supplies cut, a move European capitals rejected and which Germany said amounted to “blackmail”.

Putin’s decree on Thursday leaves Europe facing the prospect of losing more than a third of its gas supply. Germany, the most heavily reliant on Russia, has already activated an emergency plan that could lead to rationing in Europe’s biggest economy.

Energy exports are Putin’s most powerful lever as he tries to hit back against sweeping Western sanctions imposed on Russian banks, companies, businessmen and associates of the Kremlin in response to Russia’s invasion of Ukraine. Moscow calls its Ukraine action a “special military operation”.

Putin said buyers of Russian gas “must open rouble accounts in Russian banks. It is from these accounts that payments will be made for gas delivered starting from tomorrow” or April 1.

“If such payments are not made, we will consider this a default on the part of buyers, with all the ensuing consequences. Nobody sells us anything for free, and we are not going to do charity either – that is, existing contracts will be stopped,” he said in televised remarks.

It was not immediately clear whether in practice there might be a way for foreign firms to continue payment without using roubles, which the European Union and G7 have ruled out.

Italy said it was in contact with its European partners to give a firm response to Russia, adding its own gas reserves would allow economic activity to continue even in the event of disruptions.

Meantime, Germany’s energy firms said they were in close talks with Berlin about how to respond to possible supply disruptions and draw up a roadmap on what to do should Russia stop gas exports.

An interior view showing a gas processing facility, operated by Gazprom company, at Bovanenkovo gas field on the Arctic Yamal peninsula, Russia May 21, 2019. (Reuters)

Searching for alternatives

Under the mechanism decreed by Putin, foreign buyers would use special accounts at Gazprombank to pay for the gas. Gazprombank would buy roubles on behalf of the gas buyer and transfer roubles to another account, the order said.

A source told Reuters that payments for gas delivered in April on some contracts started in the second half of April and May for others, suggesting the taps might not be turned off immediately.

Putin’s decision to enforce rouble payments has boosted the Russian currency, which fell to historic lows after the February 24 invasion. The rouble has since recovered much lost ground.

“What sounded grandiose has turned into a storm in a teacup. By making it the main recipient of money for gas, it puts an extra shield against sanctions around Gazprombank,” said Jack Sharples of the Oxford Institute for Energy Studies.

Western companies and governments have rejected any move to change their gas supply contracts to another payment currency. Most European buyers use euros. Executives say it would take months or longer to renegotiate terms.

Payment in roubles would also blunt the impact of Western curbs on Moscow’s access to its foreign exchange reserves. (Reuters)

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