BERLIN — Russian President Vladimir Putin insisted on Thursday that the country’s natural gas must be paid for in rubles, a request apparently intended to help bolster Russia’s currency but which European leaders say they will not comply with. because it violates the terms of contracts and penalties.
Putin said Russia would begin accepting ruble payments on Friday and gas supplies would be cut off if buyers did not agree to new terms, including opening ruble accounts in Russian banks, from from which gas payments will be made.
“If these payments are not made, we will consider this as the buyer’s failure to fulfill his obligations, with all the ensuing consequences,” Putin said.
European leaders have cautiously insisted they will continue to pay for natural gas in euros and dollars and want to see the fine print of how the Kremlin will enforce its decree. It came a day after Italian and German leaders said they had received assurances from Putin regarding gas supplies.
Putin announced last week that countries deemed “unfriendly” for imposing sanctions on Russia for its war in Ukraine should pay for natural gas only in Russian currency. His proposal has caused a spike in natural gas prices and raised fears it could be the prelude to a disruption in supplies to Europe, which relies heavily on Russian natural gas and would be struggling with a sudden cut. At the same time, Russia depends on oil and gas sales for much of its government revenue at a time when its economy is under severe pressure from Western sanctions.
Putin’s request appeared to be part of Russia’s efforts to boost the ruble after the currency fell under Western sanctions. After dropping to 143 rubles to the dollar in early March, it took 82 rubles to buy a dollar on Thursday, roughly the same level as the day Russia launched its invasion.
Economists say changing gas payments to rubles would do little to support the Russian currency, since gas exporter Gazprom has to sell 80% of its foreign currency earnings for rubles anyway. The White House said on Thursday that the ruble was no longer a reliable measure of the Russian economy because it was artificially supported.
Evercore ISI analysts said Putin’s main motive appears to be “to prove he can bend European leaders to his will”. They also said that even if Russia is able to force the EU to pay for gas in roubles, European countries could retaliate by imposing more tariffs on Russian oil imports or banning them altogether. While Russia could eventually sell the oil, the price would likely be greatly reduced, analysts said.
The decree signed by Putin and published by state news agency RIA Novosti says a designated bank will open two accounts for each buyer, one in foreign currency and one in roubles. Buyers will pay in foreign currency and allow the bank to sell it in rubles at the Moscow exchange office. The rubles would then be placed in the second account, where the gas is officially purchased.
People are “wondering what Putin is up to,” said Tim Ash, sovereign emerging markets strategist at BlueBay Asset Management. Putin may have interpreted the German government’s reluctance to boycott Russian energy “as a weakness and is now trying to engineer this energy crisis…the solution here is to call Putin’s bluff and say, of course, cut off the power supply and see who breaks first.”
D’Emilio contributed from Rome. AP reporter Colleen Barry in Milan contributed.