BERLIN: 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 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”.
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.
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.
Putin’s decision to enforce rouble payments has boosted the Russian currency, which fell to historic lows after the February 24 invasion of Ukraine. The rouble has since recovered much lost ground.
Western companies and governments have rejected any move to change their gas supply contracts to another payment currency. Most European buyers use euros and 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.
READ MORE: Russia insists on gas payment in roubles after G7 outcry
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.
German Finance Minister Christian Lindner said existing gas contracts were based in euros and payments would continue to be made in that currency. French economy minister Bruno Le Maire said France and Germany were preparing for the possibility of Russian gas flows being halted.Â
Putin said the switch to roubles would strengthen Russia’s sovereignty. He said the West was 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.
European gas prices have rocketed higher in recent months on mounting tension with Russia raising the risk of recession. The soaring energy prices have forced companies, including makers of steel and chemicals, to curtail production.
British and Dutch gas prices were up 4% to 5% after the Putin’s announcement. European companies had little or no immediate comment on the Russian announcement or on their contracts with Gazprom which has a monopoly on Russian gas exports by pipeline.
