Russian President Vladimir Putin has threatened to cut off gas supplies to western Europe today unless buyers use roubles as the currency. It is the latest twist over energy supplies that Europe relies on to heat homes and generate electricity.
Mr Putin insists Russia will start accepting rouble payments today and contracts will be stopped if buyers do not sign up to the new conditions, including opening rouble accounts in Russian banks “If these payments are not made, we will consider it a failure of the buyer to fulfil its obligations, with all the ensuing consequences,” Mr Putin said.
Mr Putin announced last week that Russia will demand “unfriendly” countries pay for natural gas only in Russian currency, instructing the central bank to work out a procedure for buyers to acquire roubles in Russia. The Group of Seven major economies, including Italy and Germany, rejected the demand.
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 cut-off. Before the decree was announced, Italian Premier Mario Draghi said he had received assurances from Mr Putin that Europe would not have to pay in roubles and played down fears that Moscow would cut off supplies.
Mr Draghi said Mr Putin told him during a 40-minute phone call on Wednesday evening that “existing contracts remain in force. European companies will continue to pay in dollars and euros.” Mr Draghi said he referred the discussion about how it would work to experts and that analysis was under way “to understand what it means,” including whether “European companies can continue to pay as foreseen, if this means something for the ongoing sanctions.”
“The feeling is one I have had since the beginning, that it is absolutely not simple to change the currency of payments without violating the contracts,” Mr Draghi said. The French and German finance ministers also said after meeting in Berlin that contracts cannot simply be altered and that they would examine what Mr Putin has proposed.
Kremlin backs down?
Following Putin'a decree, Kremlin spokesman Dmitry Peskov said: "Does this mean that if there is no confirmation in rubles, then gas supplies will be cut off from April 1? No, it doesn't." He added that it will only affect payments from the second half of April, and Gazprom would work with its customers to implement the new rules. eskov said that Russia could at some point abandon the rouble order if conditions changed, but "in the current conditions, roubles are the most preferable and reliable option for us".
Could Europe cope if Russia cut off the gas taps?
Of all the major European countries, Germany is the most reliant on Russian gas with as much as 55 per cent of its gas supplies coming from the east. The UK’s exposure to Russian gas is considerably lower than countries on the Continent. Just four per cent of the country’s imports came from Russia in 2021.
Austria and Germany have implemented emergency plans as a step towards rationing gas supply if necessary. The EU is heavily dependent on Russian gas, relying on Moscow for 40 per cent of its energy needs. This has made the continent vulnerable to Putin's influence, as he has squeezed gas supplies over the past year to apply political pressure on the bloc.
Germany has triggered the first step in its national gas emergency plan on Wednesday morning, indicating there is a “serious risk” of disruption. According to S&P Global Platts, this requires a crisis team to assess the supply situation, with the second level only activated if there are supply disruptions.
The third level is 'emergency', when market-based measures have failed to remedy shortages. At this stage, Germany’s network regulator, the Bundesnetzagentur, must decide on how to distribute remaining gas supplies across the country to ensure that those who need it most – such as hospitals and private households – receive it.
The European Commision has been assessing scenarios that included a full halt to Russian gas supplies next winter. An immediate cut off of Russian exports would have severe consequences, however, with gas rationing and industrial users first hit. Earlier in the war, the EU announced it aims to cut its dependency on Russian gas by two-thirds this year and end Russian fossil fuel imports by 2027.
What about the UK and US?
In response to whether the UK would consider paying Russian in roubles, a No 10 spokesman said: “That's not something that we will be looking to do.”
The UK is not dependent on Russian gas. This means it is highly unlikely the UK will experience shortages of essential fuels. Nevertheless, gas prices have jumped, meaning the continuing cost of living crisis could get worse if a solution is not agreed upon by all parties.
About half of UK gas supplies are of domestic origin, from the North Sea. Another third of the UK's gas comes through pipelines from Norway. The UK has also already banned imports of Russian gas,.
In the US, President Biden is releasing oil in an attempt to cut prices. A White House official said a “wartime bridge” would remain in place for the next six months. US petrol prices are nearly a dollar a gallon higher since Russia began building up its forces in January. The policy change would mean imposing financial penalties on oil companies if they continue to not use public lands they have leased to boost production.
