Saturday, December 2

Putin talks tough on gas-for-rubles deadline. But Europe is not too worried

Russian President Vladimir Putin has demanded so-called “unfriendly” countries pay for Russian gas in rubles.

Mikhail Klimentev | Afp | Getty Images

Russian President Vladimir Putin has sought to ratchet up the pressure on foreign buyers of natural gas, telling so-called “unfriendly” countries to pay in rubles from Friday — or have their supplies cut off.

Perhaps surprisingly, however, the leaders of Germany and Italy appear unfazed by Putin’s rhetoric.

That’s because they believe European customers won’t be bound by the Kremlin’s new mechanism and can instead continue paying for Russian gas in euros or dollars.

Putin on Thursday issued a decree insisting foreign buyers of Russian gas must pay in rubles from Friday by opening a Russian bank account or have their contracts for deliveries canceled.

Russia’s president has repeatedly demanded that so-called “unfriendly” countries make the currency switch for Russian gas, targeting those behind the heavy economic sanctions designed to isolate Russia over its unprovoked onslaught in Ukraine.

“Today I signed a decree that establishes the rules for trading Russian natural gas with the so-called ‘unfriendly’ states. We offer counter parties from such countries a clear and transparent scheme, in order to purchase Russian natural gas, they must open ruble accounts in Russian banks,” Putin said in a televised address, according to a translation.

“If these payments are not made, we will consider it a failure of the buyer to fulfill its obligations with all the ensuing consequences.”

‘A process of reflection within Russia’

A German government readout of a call between Scholz and Putin on Wednesday said the Russian president had informed Scholz that gas deliveries would have to be settled in rubles from April 1.

“At the same time, [Putin] emphasized in the conversation that nothing would change for the European contractual partners,” the readout said.

Payments would continue to be made exclusively in euros as usual to Russia’s Gazprombank, which is not affected by economic sanctions, and the bank would then convert the money into euros.

The Kremlin’s readout of the same call said the currency switch was necessary due to the fact that the foreign exchange reserves of the Bank of Russia had been frozen by EU member states. It was agreed that experts from Russia and Germany would continue to negotiate on this matter, the Russian statement said.

Italian Prime Minister Mario Draghi spoke to reporters on Thursday about his call with Russia’s Putin.

Baris Seckin | Anadolu Agency | Getty Images

Meanwhile, Italy’s Draghi also held a call with Putin on Wednesday. And, speaking to reporters on Thursday about the outcome of those talks, Draghi said Italy does not expect a halt to the deliveries of Russian gas.

Existing contracts would instead remain in force and European firms would continue to pay in euros or dollars rather than rubles, Draghi said, according to Reuters. The Italian prime minister also indicated that he believed Putin had softened previous demands for gas payments in rubles.

“I think there has been a process of reflection within Russia that has led to a better definition of what it means to pay in roubles, as President Putin defined it yesterday,” Draghi said Thursday, Reuters reported.

“What I understood, but I may be wrong, is that the conversion of the payment … is an internal matter of the Russian Federation,” he added.

Kremlin spokesman Dmitry Peskov confirmed earlier in the week that Russia would not be seeking gas payments in rubles immediately, saying instead the switch was likely to be a “gradual process.”

Europe’s dependence on Russian gas

Germany, alongside the G-7, has signaled that gas supply agreements cannot be unilaterally modified, and European buyers of Russian gas say the Kremlin is not entitled to redraw long-term contracts.

Energy analysts believe it is unlikely Russia’s state-controlled gas giant Gazprom will violate its existing contracts by refusing to supply gas to customers who refuse to pay in rubles in the short term.

Russian state-owned energy giant Gazprom said Friday that it was continuing to supply Europe with natural gas, Reuters reported.

Andrew Rudakov | Bloomberg | Getty Images

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