
Russian President Vladimir Putin is demanding foreign buyers pay for Russian
gas in roubles from Friday or else have their supplies cut, a move European
capitals rejected and which Berlin said amounted to "blackmail". Putin’s move, via a decree signed on Thursday,
leaves Europe facing the prospect of losing more than a third of its gas
supply. Germany, the most heavily reliant on Russia, has already activated an
emergency plan that could lead to rationing in Europe's biggest economy. Energy exports are Putin's most powerful
lever as he tries to hit back against sweeping Western sanctions imposed on
Russian banks, companies, businessmen and associates of the Kremlin in response
to Russia's invasion of Ukraine. Moscow calls its Ukraine action a "special
military operation". In televised remarks, Putin said buyers
of Russian gas "must open rouble accounts in Russian banks. It is from
these accounts that payments will be made for gas delivered starting from
tomorrow," or April 1. "If such payments are not made, we
will consider this a default on the part of buyers, with all the ensuing
consequences. Nobody sells us anything for free, and we are not going to do
charity either - that is, existing contracts will be stopped," he said. It was not immediately clear whether in
practice there might still be a way for foreign firms to continue payment
without using roubles, which the European Union and G7 group of states have
ruled out. His decision to enforce rouble payments
has boosted the Russian currency, which fell to historic lows after the Feb. 24
invasion. The rouble has since recovered much lost ground. Western companies and governments have
rejected any move to change their gas supply contracts to change the payment
currency. Most European buyers use euros. Executives say it would take months
or longer to renegotiate terms. Payment in roubles would also blunt the
impact of Western curbs on Moscow's access to its foreign exchange reserves. Meanwhile, European states have been
racing to secure alternative supplies, but with the global market already
tight, they have few options. The United States has offered more of its
liquefied natural gas (LNG) but not enough to replace Russia. Germany Economy Minister Robert Habeck
said Russia had not been able to divide Europe and said Western allies were
determined to not be "blackmailed" by Russia. Berlin said it would continue paying for
Russian energy imports in euros. FROZEN PAYMENTS France's economy minister Bruno Le Maire
said France and Germany were preparing for a possible scenario that Russian gas
flows could be halted. Le Maire declined to comment on
technical details linked to latest Russian demands for rouble payment. The order signed by Putin creates a
mechanism for payments to be made via special foreign currency and rouble
accounts at Gazprombank, with the foreign money to be converted into roubles
via currency auctions on a Moscow exchange. Putin said the switch would strengthen
Russia's sovereignty, saying the Western countries were using the financial
system as a weapon, and it made no sense for Russia to trade in dollars and
euros when assets in those currencies were being frozen. "What is actually happening, what
has already happened? We have supplied European consumers with our resources,
in this case gas. They received it, paid us in euros, which they then froze
themselves. In this regard, there is every reason to believe that we delivered
part of the gas provided to Europe practically free of charge," he said. "That, of course, cannot
continue." Putin said Russia still valued its
business reputation. "We comply and will continue to
comply with obligations under all contracts, including gas contracts, we will
continue to supply gas in the prescribed volumes – I want to emphasise this –
and at prices specified in existing, long-term contracts," he said. Several European companies with Russian
contracts had no immediate comment or did not immediately respond as Putin's
announcement sent further shivers through the market. European gas prices have rocketed higher
in recent months on mounting tension with Russia raising the risk of recession.
Soaring energy prices have already forced companies, including makers of steel
and chemicals, to curtail production.  Poland's PGNiG, which has a long term
contract with Russia's gas pipeline export monopoly Gazprom that expires at the
end of this year, had no immediate comment. The Polish Climate Ministry also
had no immediate comment. The Polish contract with Gazprom is for 10.2 billion
cubic metres of gas a year and is denominated in dollars. Italian energy firm Eni, another major
European buyer of Russian gas, also had no comment. It bought around 22.5 bcm
of Russian gas in 2020. Its contracts with Gazprom expire in 2035. Germany buyers of Russian gas - Uniper,
RWE and EnBW's and VNG - did not immediately respond to requests for comment.