Germany has some advice for Russian President Vladimir Putin: think about the consequences of demanding energy payments in rubles.
Russia’s Putin said last week that “unfriendly” nations would be asked to pay for their natural gas in rubles – causing European gas prices to spike.
By demanding payments in Russian currency – and not in dollars or euros as agreed – Putin is trying to prop up the value of the ruble, which has plummeted following the Russian invasion of Ukraine. The US dollar has appreciated nearly 13% against the Russian ruble since Feb. 24, when Russia began invading Ukraine, after rising around 85% in early March.
However, Germany’s finance minister Christian Lindner said he would not be swayed by Russian demands.
“We are absolutely against any form of blackmail. These contracts are based on euros and [U.S.] Dollars and so we propose that private sector companies pay [Russia] in euros or dollars,” Lindner told CNBC’s Annette Weisbach on Monday.
“If Putin does not want to accept that, he is free to consider the consequences,” he added.
Germany’s Chancellor Olaf Scholz said last week that paying for oil in rubles would be a breach of contract, and Italian officials also said they would not pay in rubles as it would help Russia avoid Western sanctions over its invasion of Ukraine.
Still, tensions over future payments could disrupt the ongoing flow of natural gas from Russia to Europe. The region gets about 40% of its gas imports from Russia, and that figure is even higher for some European nations, notably Hungary, which in 2020 gets 95% of its gas imports from Russia.
The region’s reliance on Russian energy has prevented the bloc from imposing an oil embargo on Moscow as part of its sanctions regime – in contrast to the White House, which has banned Russian oil and gas imports.
The European Union has announced that it will revise its approach to Russian energy and reduce its long-standing dependency. A plan presented earlier this month called for cutting Russian gas imports by two-thirds by the end of the year.
“We will find solutions. We are working towards less dependence on Russian imports and if [Putin] decides to cut back on supplies, we’d have to get even faster to be independent from Russia,” said Lindner.
The region is now looking to get its energy from other sources. The United States, for example, on Friday announced a new deal with the European Union to supply the bloc with 15 billion cubic meters of liquefied natural gas this year.