Russia will seek payment in rubles for gas sales from “unfriendly” countries, President Vladimir Putin said on Wednesday, sending European gas prices soaring on concerns the move would exacerbate the region’s energy crunch.
European countries’ dependence on Russian gas to heat their homes and power their economies has been thrown into the spotlight since Moscow sent troops into Ukraine on Feb. 24 and the subsequent imposition of Western sanctions aimed at isolating Russia economically.
With the financial noose tightening and the European Union split on whether to impose sanctions on Russia’s energy sector, Mr. Putin hit back with a clear message: If you want our gas, buy our currency.
“Russia will continue, of course, to supply natural gas in accordance with volumes and prices … fixed in previously concluded contracts,” Mr. Putin said at a televised meeting with top government ministers.
“The changes will only affect the currency of payment, which will be changed to Russian rubles,” he said.
Russian gas accounts for some 40 per cent of Europe’s total consumption and EU gas imports from Russia have fluctuated between €200-million and €800-million (US$880 million) a day so far this year. The possibility that a change of currency could throw that trade into disarray sent some European wholesale gas prices up as much as 30 per cent on Wednesday. British and Dutch wholesale gas prices had jumped by Wednesday’s close.
The Russian ruble briefly leapt to a three-week high past 95 against the U.S. dollar and, despite paring some gains, stayed well below 100 after the shock announcement. The currency is down around 20 per cent since Feb. 24.
“At face value this appears to be an attempt to prop up the ruble by compelling gas buyers to buy the previously free-falling currency in order to pay,” said Vinicius Romano, senior analyst at consultancy Rystad Energy.
Mr. Putin said the government and central bank had one week to come up with a solution on how to move these operations into the Russian currency and that gas giant Gazprom would be ordered to make the corresponding changes to gas contracts.
With major banks reluctant to trade in Russian assets, some Russian gas buyers in the European Union were not immediately able to clarify how they might pay for gas.
Several firms, including oil and gas majors Eni SpA, Shell and BP PLC, RWE AG and Uniper SE – Germany’s biggest importer of Russian gas – declined to comment.
In gas markets on Wednesday, eastbound gas flows via the Yamal-Europe pipeline from Germany to Poland declined sharply, data from the Gascade pipeline operator showed.
Moscow calls its actions in Ukraine a “special military operation” to disarm and “de-nazify” its neighbour. Ukraine. Western allies call those baseless pretexts that have raised fears of wider conflict in Europe.
According to Gazprom, 58 per cent of its sales of natural gas to Europe and other countries as of Jan. 27 were settled in euros. U.S. dollars accounted for about 39 per cent of gross sales and sterling around 3 per cent.
The European Commission has said it plans to cut EU dependency on Russian gas by two-thirds this year and end its reliance on Russian supplies of the fuel “well before 2030.”
But unlike the United States and Britain, EU states have not agreed to impose sanctions on Russia’s energy sector, given their dependency. The Commission, the 27-country EU’s executive, did not immediately respond to a request for comment.
German Economy Minister Robert Habeck said on Wednesday that he would discuss with European partners a possible answer to Moscow’s announcement about the gas payments.
“It is unclear how easy it would be for European clients to switch their payments to rubles given the scale of these purchases,” said Leon Izbicki, associate at consultancy Energy Aspects.
“However, there are no sanctions in place that would prohibit payments of Russian gas in rubles,” he said, adding that Russia’s central bank could provide additional liquidity to foreign-exchange markets that would enable European clients and banks to source the needed amount of rubles on the market.
However, there are questions over whether Russia’s decision would breach contract rules which were agreed to in euros.
“This would constitute a breach to payment rules included in the current contracts,” said a senior Polish government source, adding that Poland has no intention of signing new contracts with Gazprom after their current long-term agreement expires at the end of this year.
Germany’s Habeck also said Putin’s demand was a breach of delivery contracts.
A spokesperson for Dutch gas supplier Eneco, which buys 15 per cent of its gas from Gazprom’s German subsidiary Wingas GmbH, said it had a long-term contract that was denominated in euros.
“I can’t imagine we will agree to change the terms of that.”
The Dutch Economic Affairs Ministry said it was too soon to comment.
Russia has drawn up a list of “unfriendly” countries corresponding to those that have imposed sanctions. Among other things, deals with companies and individuals from those countries have to be approved by a government commission.
The list of countries includes Canada, the United States, European Union member states, Britain, Japan, Norway, Singapore, South Korea, Switzerland and Ukraine.
Some of these countries, including the United States and Norway, do not purchase Russian gas.
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