Putin tells Europe: Pay in rubles or we’ll cut you off

  • Energy is Russia’s strongest lever against the West
  • Western countries reject currency change in gas deals
  • Russia won’t export gas out of ‘charity’, says Putin
  • Europe is already struggling to find alternative supplies

BERLIN/LONDON, March 31 (Reuters) – Russian President Vladimir Putin is asking foreign buyers to pay for Russian gas in rubles from Friday or face having their supply cut off, a move European capitals have rejected and the Germany called it “blackmail”.

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

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

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

“If such payments are not made, we will regard this as a default on the part of the buyers, with all the consequences that flow from it. No one is selling us anything for free, nor will we make any charity – that is, existing contracts will be stopped,” he said in a televised address.

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

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

Meanwhile, German energy companies have said they are in close talks with Berlin on how to respond to possible supply disruptions and draw up a roadmap on what to do if Russia had to stop its gas exports.

SEARCHING FOR ALTERNATIVES

According to the mechanism decreed by Putin, foreign buyers would use special accounts at Gazprombank to pay for the gas. Gazprombank would buy rubles on behalf of the gas buyer and transfer rubles to another account, according to the order. Read more

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

Putin’s decision to impose payments in rubles boosted the Russian currency, which fell to historic lows after the February 24 invasion. The ruble has since regained a lot of lost ground.

“What seemed grand has turned into a storm in a teacup. By making it the main recipient of gas money, 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 attempt to change their gas supply contracts to another payment currency. Most European buyers use euros. Leaders say it would take months or more to renegotiate terms.

Payment in rubles would also lessen the impact of Western restrictions on Moscow’s access to its foreign exchange reserves.

Meanwhile, European states have scrambled to secure alternative supplies, but with the already tight global market, they have few options. The United States offered more of its liquefied natural gas (LNG), but not enough to replace Russia.

“It is important for us not to give a signal that we will be blackmailed by Putin,” German Economy Minister Robert Habeck said, adding that Russia had not been able to split the EU. Europe.

Payments would continue to be made in euros, Germany said.

French Economy Minister Bruno Le Maire said France and Germany were preparing for the possibility of a halt in Russian gas flows. He declined to comment on technical details related to the latest Russian demands for ruble payments.

Putin said the switch to the ruble 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 frozen.

“What is really happening, what has already happened? We have provided European consumers with our resources, in this case gas. They received it, paid us in euros, which they then froze themselves. that we deliver some of the gas supplied to Europe virtually for free,” he said.

“This, of course, cannot continue,” Putin said, although he said Russia still values ​​its commercial reputation and will continue to meet its obligations in its gas and other contracts.

STAY UNITED

Gas prices in Europe have soared on rising tensions, with Russia raising the risk of recession. Companies, including steel and chemical manufacturers, have been forced to cut production. Read more

British and Dutch gas prices rose 4-5% after Putin’s announcement.

European companies had little to no immediate comment on the Russian announcement or their contracts with Gazprom , which has a monopoly on Russian gas exports via pipeline.

Poland’s PGNiG (PGN.WA) said it was keeping in touch with Gazprom, with whom it has a long-term contract that expires at the end of this year, but said it would not discuss details.

Italian energy company Eni (ENI.MI), another major European buyer of Russian gas, also had no comment. It bought around 22.5 billion m3 of Russian gas in 2020. Its contracts with Gazprom expire in 2035.

Danish energy company Orsted (ORSTED.CO), which has a long-term contract with Gazprom, said it was waiting for news from the Russian company and declined to comment further.

Uniper (UN01.DE) and EnBW (EBKG.DE) VNG (VNG.UL), two major German buyers of Russian gas, declined to comment, while RWE (RWEG.DE) did not immediately respond.

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Reporting by Reuters correspondents, including Stephen Jewkes in Milan, Vera Eckert, Joseph Nasr and Tassilo Hummel in Berlin, Nina Chestney in London, Marek Strzelecki in Warsaw and Christoph Steitz and John O’Donnell in Frankfurt; Written by Mark Trevelyan; Editing by Edmund Blair and Grant McCool

Our standards: The Thomson Reuters Trust Principles.

Mary I. Bruner