Russian President Vladimir Putin issued a decree demanding payment for gas in rubles, but seemed to soften the mandate by allowing payments in dollars and euros through a designated bank. It is the latest change in Europe ‘s energy supply for home heating and electricity generation. The move has been met with skepticism by European leaders who insist the payment will remain in euros and dollars and want to see the fine print on how the decree will be implemented. Countries deemed “friendly” to Russia for imposing sanctions on Ukraine over the war could continue to pay in foreign currency through a Russian bank that would then convert the money into rubles, according to a Kremlin decree issued by the state media. The day came after the leaders of Italy and Germany said they had received assurances from Mr Putin about gas supplies.
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Putin spoke more harshly, saying Russia would start accepting ruble payments on Friday and that contracts would be suspended if buyers did not sign the new terms, including opening ruble accounts with Russian banks. “If these payments are not made, we will consider that the buyer has not fulfilled his obligations, with all the consequent consequences,” Putin said. His proposal has spurred gas prices and raised fears that it could be a prelude to a cut-off in Europe, which is heavily dependent on Russian gas, and would have difficulty with a sudden shutdown. The German government on Wednesday issued an early warning of an energy emergency, the first step towards authorizing the government to impose a gas bill on the industry to save homes and hospitals. At the same time, Russia is dependent on oil and gas sales for much of its state revenue at a time when its economy is under intense pressure from Western sanctions. Economists say the changeover to the ruble would provide little support for the Russian currency’s exchange rate, as gas exporter Gazprom has to sell 80 percent of its profits in foreign currency for rubles. The decree, signed by Putin and the state-run RIA Novosti news agency, states that a designated bank will open two accounts for each buyer, one in foreign currency and one in rubles. Buyers will pay in foreign currency and authorize the bank to sell it for rubles at the Moscow exchange. The rubles will then be deposited in the second account, where the gas is officially purchased. Speaking shortly after Putin’s announcement, German Chancellor Olaf Solz said that gas contracts provide for payment mainly in euros and sometimes in dollars. He said he had made it clear to Mr Putin by telephone on Wednesday that “this will remain the case”. “His ideas on how this can happen are something we will now look at carefully,” Mr Scholz told reporters in Berlin. “But in any case, what applies to companies is that they want and will be able to pay in euros.” Mr Putin announced last week that Russia would require “unfriendly” countries to pay for gas only in Russian currency, instructing the central bank to work out a procedure for buyers to acquire rubles in Russia. The Group of Seven major economies, including Italy and Germany, rejected the demand. Ahead of the announcement of the decree, Italian Prime Minister Mario Draghi said on Thursday that he had received assurances from Putin that Europe would not have to pay in rubles and downplayed fears that Moscow would cut off supplies. Draghi said Putin told him during a 40-minute telephone conversation on Wednesday afternoon that “existing conventions remain in force. “European companies will continue to pay in dollars and euros.” Draghi said he referred the debate to how it would work to experts and that the analysis was ongoing “to understand what it means”, including whether European companies can continue to pay as expected, if that means anything to ongoing sanctions “. “It is a feeling I had from the beginning that it is not entirely simple to change the payment currency without violating the contracts,” Mr Draghi said. The French and German finance ministers also said after the meeting in Berlin that the agreements could not simply be amended and that they would consider what Mr Putin had proposed.
