Russian President Vladimir Putin on Thursday said that the country’s natural gas must be paid for with rubles, a demand apparently intended to help bolster the Russian currency, but one that European leaders say they will not comply with because it violates the terms of contracts and sanctions.
Putin said that Russia was to start accepting ruble payments from yesterday and gas supplies would be cut off if buyers do not agree to the new conditions, including opening ruble accounts in Russian banks, from which the gas payments would be made.
“If these payments are not made, we will consider it a failure of the buyer to fulfill its obligations, with all the ensuing consequences,” Putin said.
European leaders said that they would continue to pay for natural gas in euros and US dollars, and want to see the fine print of how the Kremlin will implement its decree.
It came a day after the leaders of Italy and Germany said they received assurances from Putin about gas supplies.
Putin last week said that countries deemed “unfriendly” for imposing sanctions on Russia over its war in Ukraine must pay for natural gas only in the Russian currency.
His proposal has caused natural gas prices to gyrate and raised fears it could be a prelude to an interruption of supplies to Europe, which is heavily dependent on Russian natural gas and would struggle with a sudden cutoff.
At the same time, Russia depends on oil and gas sales for much of its government revenue at a time its economy is under severe stress from Western sanctions.
Putin’s demand appeared to be part of Russia’s efforts to boost the ruble after the currency plunged under Western sanctions. After dropping as low as 143 rubles to the US dollar early last month, on Thursday it took 82 rubles to buy a dollar, around the same level as the day Russia launched its invasion.
Economists say that switching the gas payments to rubles would do little to support the Russian currency, as gas exporter Gazprom has to sell 80 percent of its foreign currency earnings for rubles anyway.
The White House on Thursday said that the ruble is no longer a reliable measure of Russia’s economy because it is being artificially propped up.
Analysts at Evercore ISI said that Putin’s primary motive seems to be “to prove he can bend EU leaders to his will.”
Even if Russia is able to force the EU to pay for gas in rubles, the European countries could retaliate by imposing more tariffs on Russian oil imports or banning them outright, the analysts said.
While Russia could eventually sell the oil, the price would likely be at a steep discount, they said.
The decree Putin signed and a Russian News and Information Agency report say that a designated bank would open two accounts for each buyer, one in foreign currency and one in rubles.
Buyers would pay in foreign currency and authorize the bank to sell it for rubles on Moscow’s currency exchange.
The rubles would then be placed in the second account, where the gas is formally purchased.
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