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Rubles for natural gas: Europe faces Russia gas deadline

Moscow has sought to leverage its position as an energy exporter in a bid to counter Western sanctions over its invasion of Ukraine

FPJ Web Desk | Updated on: Friday, April 01, 2022, 11:54 AM IST

Ships are loaded and unloaded at the port of Brunsbuettel, Germany, on March 1, 2022 | AP
Ships are loaded and unloaded at the port of Brunsbuettel, Germany, on March 1, 2022 | AP
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Countries could have their gas supply turned off after Moscow set a Friday deadline for payments to be made in Russia's currency.

Russian President Vladimir Putin signed a decree on Thursday that stipulated that buyers must make payments in rubles, which Moscow had threatened to do last week.

Moscow has sought to leverage its position as an energy exporter in a bid to counter Western sanctions over its invasion of Ukraine. European Union countries have imposed wide-ranging sanctions but stopped short of an energy embargo due to their dependence on Russian gas.

“To buy Russian gas, they need to open rouble accounts in Russian banks,” Putin said in a televised appearance on Thursday. “It is from those accounts that gas will be paid for, starting 1 April. If such payments aren’t made, we will consider this a failure by the client to comply with its obligations.”

The threat of a gas shutoff was reduced, however, as details emerged about the new deal, which appeared to allow European buyers to continue to pay for gas in euros and dollars.

The decree Putin signed on Thursday authorises the state-controlled Gazprombank to open foreign currency and rouble accounts for gas purchases. European buyers would pay in foreign currency and then authorise Gazprombank to make the conversion into roubles, which would then be used to formally purchase the gas.

Russia’s insistence that its “unfriendly” nations pay in rubles for Russian natural gas risks disrupting European supplies as soon as this week as the deadline set by Putin for moving to ruble payments is drawing closer.

Europe, which depends on Russian natural gas for more than one-third of its demand—with some countries, including the biggest economy Germany, depending on Russia for half of its consumption—has rejected the gas-for-rubles idea, saying it would be a breach of contracts to switch the currency in payments.

Russia, for its part, says it demands only rubles for its gas and will not ship gas for free.

Europe’s gas prices continued rising on Tuesday, two days ahead of the March 31 deadline Vladimir Putin has set for the government, Gazprom, and the central bank of Russia to make the arrangements for payments in rubles from the so-called “hostile” countries.

The Russian President—whose list of “hostile” states includes the United States, all EU member states, Switzerland, Canada, Norway, South Korea, Japan, and many others—ordered last week the central bank to develop a system for payments in rubles within a week.

“The Russian government together with the Bank of Russia and Gazprom PJSC should implement a set of measures on changing the currency of payment for natural gas supplies to the countries of the European Union and other states that imposed restrictive measures against the citizens of the Russian Federation and Russian legal entities, to the Russian ruble,” Putin said this week per a Kremlin document cited by Russian news agency TASS.

Germany has insisted that it will pay in euros or dollars as stipulated in existing contracts and called Moscow's demand to pay in rubles "blackmail." Before the Russian invasion of Ukraine, Germany imported 55% of its gas supplies from Russia.

France's economy minister said Berlin and Paris were preparing for a scenario where Russia turns off gas taps.

Early in March, the European Union introduced a proposal to reduce dependency on Russian gas by seeking increased supply from the United States and Qatar and by expanding clean energy.

On Thursday, US President Joe Biden announced that the United States would release one million barrels of oil per day from the nation's petroleum reserve over six months with the aim of combatting the rise in global gas prices.

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Published on: Friday, April 01, 2022, 11:54 AM IST