Putin says Russia will make ‘unfriendly’ countries pay for gas in rubles

Russia will seek to be paid in rubles for gas sold to “unfriendly” countries, President Vladimir Putin said on Wednesday, and gas prices in Europe have soared over fears the move could exacerbate the energy crisis in Europe. the region.

European nations and the United States have imposed heavy sanctions on Russia since Moscow sent troops to Ukraine on February 24.

But Europe is heavily dependent on Russian gas for heating and power generation, and the European Union is divided on whether to sanction Russia’s energy sector.

Putin’s message was clear: if you want our gas, buy our currency. It remains unclear whether Russia has the power to unilaterally change existing contracts concluded in euros.

The ruble briefly jumped on news of the shock to a three-week high after 95 against the US dollar. It pared gains but remained well below 100, closing at 97.7, down more than 22% since February 24.

Some wholesale gas prices in Europe up to 30% higher on Wednesday. Wholesale gas prices in the UK and the Netherlands have surged.

Russian gas accounts for around 40% of Europe’s total consumption. EU gas imports from Russia have fluctuated this year between 200 and 800 million euros (880 million US dollars) per day.

“Russia will, of course, continue to supply natural gas in accordance with the volumes and prices … set in the contracts concluded previously,” Putin said in a televised meeting with government ministers.

“The changes will only affect the payment currency, which will be changed to Russian rubles,” he said.

Putin’s message on Wednesday was clear: if you want our gas, buy our currency. It remains unclear whether Russia has the power to unilaterally change existing contracts concluded in euros. (AFP/Getty Images)

Breach of contract

German Economy Minister Robert Habeck called Putin’s request a breach of contract and other Russian gas buyers echoed the point.

This decision, according to a Polish government source, “would constitute a violation of the payment rules included in the current contracts”. The source added that Poland had no plans to sign new contracts with Gazprom, the largely state-owned Russian energy giant, after their existing deal expired at the end of This year.

Big banks are reluctant to trade Russian assets, further complicating Putin’s claim.

A spokesman for Dutch gas supplier Eneco, which buys 15% of its gas from Gazprom’s German subsidiary Wingas GmbH, said it had a long-term contract denominated in euros.

“I can’t imagine we’ll agree to change the terms of this.”

According to Gazprom, 58% of its natural gas sales to Europe and other countries as of January 27 were settled in euros. The US dollar accounted for around 39% of gross sales and the pound sterling around 3%. Goods traded around the world are largely traded in US dollars or Euros, which account for around 80% of global foreign exchange reserves.

“There is no danger for the [gas] supply, we have checked, there is a financial counterpart in Bulgaria who can carry out the transaction also in rubles,” Bulgarian Energy Minister Alexander Nikolov told reporters in Sofia. “We expect all sorts of action bordering on the unusual, but this scenario has been discussed, so there is no risk to payments under the existing contract.”

Several companies, including oil and gas majors Eni, Shell and BP, RWE and Uniper – Germany’s largest importer of Russian gas – declined to comment.

“It’s unclear how easy it would be for European customers to convert their payments into rubles given the scale of these purchases,” said Leon Izbicki, partner at consultancy Energy Aspects.

He said, however, that the Russian central bank could provide additional liquidity to the foreign exchange markets, which would allow European customers and banks to raise the necessary rubles.

Moscow describes its actions in Ukraine as a “special military operation”. Ukraine and its Western allies call this a baseless pretext.

Putin said that the government and the central bank had one week to find a solution on the transfer of operations to Russian currency and that Gazprom would be ordered to make corresponding changes to the contracts.

A Russian Gazprom vessel – a floating storage and regasification unit – is seen anchored off the Baltic Sea near Kaliningrad, Russia, in early February. (Vitaly Nevar/Reuters)