BERLIN (AP) – Russian President Vladimir Putin on Thursday insisted that the country’s natural gas must be paid for in rubles, a demand apparently intended to help strengthen Russia’s currency but one that European leaders are saying that they will not comply with them because they violate the terms of the treaties and penalties.
Putin said Russia will accept ruble payments from Friday and gas supplies would be halted if buyers did not agree to the new terms, including opening ruble accounts in Russian banks from which the gas payments would be made.
“If these payments are not made, we consider this as a failure of the buyer to fulfill his obligations, with all the ensuing consequences,” Putin said.
European leaders cautiously insisted they will continue to pay for natural gas in euros and dollars, and want to see the fine print on how the Kremlin will implement its decree. It came a day after the leaders of Italy and Germany said they had received assurances from Putin about gas supplies.
Putin announced last week that countries deemed “unfriendly” for imposing sanctions on Russia over its war in Ukraine will only have to pay for natural gas in Russian currency. His proposal has sent natural gas prices skyrocketing and sparked fears it could be the prelude to a disruption in supplies to Europe, which is heavily dependent on Russian natural gas and could face a sudden shutdown. At the same time, Russia depends on oil and gas sales for much of its government revenue, while its economy is severely weighed down by Western sanctions.
Putin’s request appeared to be part of Russia’s efforts to appreciate the ruble after the currency fell under Western sanctions. After the dollar fell as low as 143 rubles in early March, it cost 82 rubles to buy a dollar on Thursday, about the same level as the day Russia launched its invasion.
Economists say switching gas payments to rubles would do little to support Russia’s currency as gas exporter Gazprom has to sell 80% of its foreign exchange earnings in rubles anyway. The White House said Thursday that the ruble is no longer a reliable benchmark for Russia’s economy because it is being artificially propped up.
Evercore ISI analysts said Putin’s main motive appears to be “to prove he can bend EU leaders to his will”. They also said that even if Russia were able to force the EU to pay for gas in rubles, European countries could retaliate by imposing more tariffs on Russian oil imports or banning them outright. While Russia could eventually sell the oil, the price would likely be heavily discounted, analysts said.
The decree, signed by Putin and published by the state news agency RIA Novosti, says that a designated bank will open two accounts for each buyer, one in foreign currency and one in rubles. Buyers pay in foreign currency and authorize the bank to sell them for rubles at the Moscow exchange office. The rubles would then be placed in the second account, where the gas will officially be purchased.
People “wonder what Putin is up to,” said Tim Ash, senior emerging markets sovereign strategist at BlueBay Asset Management. Putin may have interpreted the German government’s unwillingness to boycott Russian energy “as weakness and is now trying to engineer this energy crisis… the solution here is to expose Putin’s bluff and say, sure, cut off energy supplies and see who breaks first.” . ”
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D’Emilio contributed from Rome. AP reporter Colleen Barry in Milan contributed.