(Reuters) – Russian 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 Berlin said amounted to “blackmail”.
Putin’s move, via a decree signed 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”.
In televised remarks, 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.
It was not immediately clear whether in practice there might still be a way for foreign firms to continue payment without using roubles, which the European Union and G7 group of states have ruled out.
His decision to enforce rouble payments has boosted the Russian currency, which fell to historic lows after the Feb. 24 invasion. The rouble has since recovered much lost ground.
Western companies and governments have rejected any move to change their gas supply contracts to change the 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.
Meanwhile, European states have been racing to secure alternative supplies, but with the global market already tight, they have few options. The United States has offered more of its liquefied natural gas (LNG) but not enough to replace Russia.
Germany Economy Minister Robert Habeck said Russia had not been able to divide Europe and said Western allies were determined to not be “blackmailed” by Russia.
Berlin said it would continue paying for Russian energy imports in euros.
France’s economy minister Bruno Le Maire said France and Germany were preparing for a possible scenario that Russian gas flows could be halted.
Le Maire declined to comment on technical details linked to latest Russian demands for rouble payment.
The order signed by Putin creates a mechanism for payments to be made via special foreign currency and rouble accounts at Gazprombank, with the foreign money to be converted into roubles via currency auctions on a Moscow exchange.
Putin said the switch would strengthen Russia’s sovereignty, saying the Western countries were using the financial system as a weapon, and it made no sense for Russia to trade in dollars and euros when assets in those currencies were being frozen.
“What is actually happening, what has already happened? We have supplied European consumers with our resources, in this case gas. They received it, paid us in euros, which they then froze themselves. In this regard, there is every reason to believe that we delivered part of the gas provided to Europe practically free of charge,” he said.
“That, of course, cannot continue.”
Putin said Russia still valued its business reputation.
“We comply and will continue to comply with obligations under all contracts, including gas contracts, we will continue to supply gas in the prescribed volumes – I want to emphasise this – and at prices specified in existing, long-term contracts,” he said.
Several European companies with Russian contracts had no immediate comment or did not immediately respond as Putin’s announcement sent further shivers through the market.
European gas prices have rocketed higher in recent months on mounting tension with Russia raising the risk of recession. Soaring energy prices have already forced companies, including makers of steel and chemicals, to curtail production. read more
Poland’s PGNiG, which has a long term contract with Russia’s gas pipeline export monopoly Gazprom that expires at the end of this year, had no immediate comment. The Polish Climate Ministry also had no immediate comment. The Polish contract with Gazprom is for 10.2 billion cubic metres of gas a year and is denominated in dollars.
Italian energy firm Eni, another major European buyer of Russian gas, also had no comment. It bought around 22.5 bcm of Russian gas in 2020. Its contracts with Gazprom expire in 2035.