There is a lot of talk about gas in Europe in the context of Russia’s invasion of Ukraine, at least. Here’s key things to know: WHAT DOES PUTIN PROPOSE? Putin said importers of Russian gas must now pay in rubles. European leaders have said no to dice – contracts say euros or dollars and one side cannot change that abruptly. The change of currency would normally be followed by extensive negotiations, analysts say, with customers asking for something in return for their exposure to fluctuations resulting from payment in the less stable ruble. Open-ended questions about what change could mean have sent shockwaves through the energy markets, raising uncertainty about whether Europe’s gas could be shut down and hit the economy hard. But Russia also relies on oil and sales to fund its government, as sanctions have tightened its financial system. The Kremlin offered what could be considered a window. Importers simply had to set up a dollar or euro account at a designated bank and then a second ruble account. The importer paid the gas bill in euros or dollars and instructed the bank to exchange the money for rubles. In any case, Kremlin spokesman Dmitry Peshkov said on Friday that the change would not take place immediately: May”. European leaders have rejected the proposal as “blackmail” and say payments in dollars and euros will continue. German officials would not discuss the impact of Putin’s decree other than saying they were considering it. Economy Ministry spokeswoman Beate Baron said Russia’s Gazprombank had been given 10 days to explain the process, “and of course we will look into it carefully.” A senior European Commission official wrote on Twitter that the European Union was coordinating “to establish a common approach”. WHAT’S NEXT PUTIN? The Kremlin says the change is necessary because Western sanctions have frozen its foreign exchange reserves. Because the measure targets importers in “unfriendly countries”, it can be seen as retaliation for sanctions imposed by many Russian banks on international financial transactions and forcing some Western companies to abandon their operations in Russia. The economic benefits for Russia are unclear. In theory, the ruble payment would increase demand for the currency and help the Kremlin maintain its exchange rate, which has recovered from its initial dive after the invasion. But Gazprom, a gas exporter, already has to sell 80 percent of its foreign exchange earnings for rubles, so the currency boost could be minimal. The Kremlin says it also wants to extend its ruble payments to other commodities, such as metals. An incentive can be political, said Stefan Meister, head of the program for international order and democracy at the German Council on Foreign Relations. “Russia is not interested in stopping gas, but it wants a kind of political victory,” Meister said. “He wants to show that Putin is dictating the conditions under which he exports gas.” The move is aimed in part at Russia’s internal audience, Meister said, with Putin telling his people, “Look, these are hostile states and now they have to pay differently.” “So I think it’s also about gaining support inside the country, determining who the enemies are,” Meister said. Another incentive could be to protect the designated bank, Gazprombank, from sanctions because it would be the conduit for payments that maintain the flow of gas, Meister said. It is the third largest bank in Russia and, like Sberbank, the largest, has not been cut off from the international SWIFT payment system. WHAT IS THE SITUATION OF GAS SUPPLY IN EUROPE? Coordinated US and European Union sanctions exempt oil and gas payments. This is a concession from the White House to Europe’s much more energy-dependent European allies, which supply 40% of Europe’s gas and 25% of its oil. Gas continued to flow into the European pipeline system from Russia on Friday, according to pipeline administrators’ websites. Many are unhappy that European utilities continue to buy energy from Russia, which on average received 43% of its annual revenue from oil and gas sales between 2011 and 2020, according to the Energy Information Administration. USA. This helped pay for the tanks and missiles used in the invasion. But it also means that Russia has good reasons not to cut off gas. CAN EUROPE SURVIVE A GAS STOP? Europe’s economy would be in trouble without Russian gas, although the impact would vary depending on how much countries use. Germany, the continent’s largest economy, is “heavily dependent on Russian energy supplies,” said Monica Schnitzer, a professor of economics at the University of Munich and a member of the government’s board of economic experts. “A suspension of these supplies runs the risk of the German economy slipping into recession with significantly higher inflation rates,” he said. Inflation is already at record highs, making everything from groceries to raw materials more expensive. It is driven by rising energy prices, with Europe facing an energy crisis even before war breaks out. The crisis has left governments and companies trying to raise supplies from other sources, but it would not be enough to cover what is being used now if Russian gas stopped suddenly. The Bruegel think tank estimated that Europe would be 10% to 15% lower than normal demand to spend the next winter heating season, which means that emergency measures would have to be taken to reduce gas consumption. European leaders have said they could not afford the consequences of an immediate boycott. Instead, they plan to reduce their use of Russian gas as quickly as possible. They order more liquefied natural gas, which comes by ship. seeking more gas from pipelines from Norway and Azerbaijan; accelerating the development of wind and solar energy; and promoting conservation measures. The goal is to reduce the use of Russian gas by two thirds by the end of the year and completely by 2027. The situation is so serious that Germany has issued an early warning for an energy emergency, the first of three stages. In a complete state of emergency, government regulators must decide which companies will cut off gas to save homes and hospitals. Manufacturers of chemical, glass, ceramic and galvanized metals use a lot of gas. The cut would hit a European economy already suffering from the effects of war and high energy prices that have pushed inflation to 7.5%.
