Putin wants ‘unfriendly’ countries to pay for Russian gas in rubles

LONDON, March 23 (Reuters) – Russia will seek payment in roubles for gas sold to “unfriendly” countries, President Vladimir Putin said on Wednesday, and European gas prices have soared on fears the move could exacerbates the region’s energy crisis.

European nations and the United States have imposed heavy sanctions on Russia since Moscow sent troops to Ukraine on February 24. But Europe is heavily dependent on Russian gas for heating and power generation, and the European Union is divided on whether to sanction Russia’s energy sector.

Putin’s message was clear: if you want our gas, buy our currency. It is not clear whether Russia has the power to unilaterally modify existing contracts concluded in euros.

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The ruble briefly jumped after news of the shock to a three-week high after 95 against the dollar. It pared gains but remained well below 100, closing at 97.7 against the dollar, down more than 22% since Feb. 24.

Some European wholesale gas prices up to 30% higher on Wednesday. Wholesale gas prices in the UK and the Netherlands have surged.

Russian gas accounts for around 40% of Europe’s total consumption. EU gas imports from Russia have fluctuated between 200 and 800 million euros ($880 million) a day this year.

“Russia will, of course, continue to supply natural gas in accordance with the volumes and prices … set in previously concluded contracts,” Putin said in a televised meeting with government ministers.

“The changes will only affect the payment currency, which will be replaced by the Russian ruble,” he said.

German Economy Minister Robert Habeck called Putin’s request a breach of contract and other Russian gas buyers echoed the point.

“This would be a breach of payment rules included in current contracts,” a Polish government source said, adding that Poland has no intention of signing new contracts with Gazprom after their existing agreement expires at the end of this year.

Big banks are reluctant to trade Russian assets, further complicating Putin’s claim.

A spokesman for Dutch gas supplier Eneco, which buys 15% of its gas from Russian gas giant Gazprom’s German subsidiary, Wingas GmbH, said it had a long-term contract denominated in euros.

“I can’t imagine we’ll agree to change the terms of this.”

According to Gazprom (GAZP.MM), 58% of its natural gas sales to Europe and other countries as of January 27 were settled in euros. The US dollar represented about 39% of gross sales and the pound sterling about 3%. Commodities traded around the world are largely traded in US dollars or Euros, which account for around 80% of global foreign exchange reserves.

“There is no danger for the (gas) supply, we have checked, there is a financial counterpart in Bulgaria who can carry out the transaction also in rubles,” said Energy Minister Alexander Nikolov to journalists in Sofia. “We expect all sorts of action bordering on the unusual, but this scenario has been discussed, so there is no risk to payments under the existing contract.”

Russian President Vladimir Putin listens to Novgorod Region Governor Andrei Nikitin during a meeting at the Kremlin in Moscow, Russia March 22, 2022. Sputnik/Mikhail Klimentyev/Kremlin via REUTERS

Several companies, including oil and gas majors Eni, Shell and BP, RWE and Uniper – Germany’s largest importer of Russian gas – declined to comment.

“It’s unclear how easy it would be for European customers to convert their payments into rubles given the scale of these purchases,” said Leon Izbicki, partner at consultancy Energy Aspects. He said, however, that the Russian central bank could provide additional liquidity to the foreign exchange markets, which would allow European customers and banks to raise the necessary rubles.

Moscow describes its actions in Ukraine as a “special military operation”. Ukraine and its Western allies call this a baseless pretext.


Putin said that the government and the central bank had one week to find a solution on the transfer of operations to Russian currency and that Gazprom would be ordered to make corresponding changes to the contracts.

In gas markets on Wednesday, eastward gas flows through the Yamal-Europe pipeline from Germany to Poland fell sharply, according to data from pipeline operator Gascade.

“Russia’s moves can also be interpreted as provocative and may increase the possibility of Western nations toughening sanctions against Russian energy,” said Liam Peach, Emerging Europe economist at Capital Economics.

The European Commission has said it plans to cut the EU’s dependence on Russian gas by two-thirds this year and end its dependence on Russian supplies ‘well before 2030’ .

But unlike the US and Britain, EU states have not sanctioned Russia’s energy sector. The Commission, the executive branch of the 27 EU countries, did not respond to a request for comment.

Habeck said he would discuss with European partners a possible response to Moscow’s announcement. Dutch Prime Minister Mark Rutte said more time was needed to clarify Russia’s request.

“In their contracts it’s usually specified in what currency it should be paid, so it’s not something you can change like that,” Rutte said during a debate with parliament.

Russia has drawn up a list of “unfriendly” countries corresponding to those that have imposed sanctions. Agreements with companies and individuals in these countries must be approved by a government commission.

Countries include the United States, European Union member states, Great Britain, Japan, Canada, Norway, Singapore, South Korea, Switzerland, and Ukraine. Some, including the United States and Norway, do not buy Russian gas.

The United States is consulting with its allies on the matter and each country will make its own decision, a White House official told Reuters. The United States has already banned imports of Russian energy.

($1 = 0.9097 euros)

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Reporting by Reuters journalists; written by Nina Chestney; edited by Catherine Evans, Carmel Crimmins, Jonathan Oatis and David Gregorio

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