Russia has told foreign countries that they must start paying for gas in the country’s currency, Roubles, or it will cut supplies.
President Vladimir Putin, has signed a decree stating buyers “must open Rouble accounts in Russian Banks” from Friday, April 1, 2022.
“Nobody sells us anything for free, and we are not going to do charity either – that is, existing contracts will be stopped.”
Russian President Vladimir Putin
Mr. Putin’s demand is being seen as an attempt to boost the Rouble, which has been hit by Western sanctions. Western companies and Governments have rejected Russia’s demands to pay for gas in Roubles as a breach of existing contracts, which are set in Euros or US Dollars. He averred the switch to Roubles is meant to strengthen Russia’s sovereignty, and it would stick to its obligations on all contracts if Western nations obliged.
Buyers’ response to new Russian directive
But Germany has mentioned the change announced by Mr. Putin amounted to “blackmail”. At a news conference, German Economy Minister, Robert Habeck, disclosed that he is yet to see the new decree signed by Mr. Putin.
“With regard to the threat, demand or consideration, one doesn’t know what to call it anymore, to be made to pay in Roubles, it is crucial for us that the contracts are respected.”
German Economy Minister, Robert Habeck
Separately, German Chancellor, Olaf Scholz pointed out that German companies would continue to pay Russia Gas using Euros as stipulated in the contracts signed between both nations. The order by Mr. Putin suggests that Foreign buyers of Russian Gas will require opening an account with Gazprombank and transfer Euros or US Dollars into the account. After payments are completed, Gazprombank will then convert this into Roubles which will then be used to make the payment for gas. France’s Economy Minister, Bruno Le Maire, on his part, declined to comment on technical details linked to the latest Russian demands for Rouble payment.
According to Analysts, making nations pay in Roubles for gas will support the country’s currency, which fell sharply, but began to recover. Head of Oil and Gas Research at Investec, Nathan Piper pointed out that Mr. Putin is attempting to put economic pressure “back on Europe” and that, more foreign exchange demand for Roubles would likely push up the value of the currency.
“However, long term Russia needs to remain a reliable supplier of gas so it is unclear if they would actually restrict gas supply,” says Piper.
“That said, even the risk of it is keeping UK/European gas prices at near-record highs and six times the 10-year average. This is translating to steep rises in consumers’ energy bills.”
Head of Oil and Gas Research at Investec, Nathan Piper
The Effect of Russia’s Invasion
Since Russia invaded Ukraine, Western Nations have imposed economic as well as trading sanctions on Russia. Although the sanctions still hold, the European Union (EU) on its side has not placed bans on oil or gas, unlike the US and Canada, as its member nations rely heavily on it.
The EU gets about 40% of its gas and 30% of its oil from Russia and has no easy substitutes if supplies are disrupted. Meanwhile, Russia currently gets €400m (£340m) per day from gas sales to the Bloc and it has no way of rerouting this supply to other markets.
