Putin tells Europe: Pay in roubles or we’ll cut off your gas

By Joseph Nasr and Mark Trevelyan

BERLIN/LONDON (Reuters) -Russian President Vladimir Putin is demanding international patrons pay for Russian fuel in roubles from Friday or else have their provides minimize, a transfer European capitals rejected and which Germany mentioned amounted to “blackmail”.

Putin’s decree on Thursday leaves Europe going through the prospect of shedding greater than a 3rd of its fuel provide. Germany, essentially the most closely reliant on Russia, has already activated an emergency plan that would result in rationing in Europe’s largest economic system.

Power exports are Putin’s strongest lever as he tries to hit again towards sweeping Western sanctions imposed on Russian banks, corporations, businessmen and associates of the Kremlin in response to Russia’s invasion of Ukraine. Moscow calls its Ukraine motion a “particular army operation”.

Putin mentioned patrons of Russian fuel “should open rouble accounts in Russian banks. It’s from these accounts that funds will likely be made for fuel delivered ranging from tomorrow,” or April 1.

“If such funds should not made, we’ll contemplate this a default on the a part of patrons, with all the following penalties. No person sells us something without spending a dime, and we’re not going to do charity both – that’s, current contracts will likely be stopped,” he mentioned in televised remarks.

It was not instantly clear whether or not in follow there is perhaps a means for international corporations to proceed cost with out utilizing roubles, which the European Union and G7 have dominated out.

Italy mentioned it was in touch with its European companions to provide a agency response to Russia, including its personal fuel reserves would permit financial exercise to proceed even within the occasion of disruptions.

Meantime, Germany’s vitality corporations mentioned they have been in shut talks with Berlin about how to answer attainable provide disruptions and draw up a roadmap on what to do ought to Russia cease fuel exports.

SEARCHING FOR ALTERNATIVES

Below the mechanism decreed by Putin, international patrons would use particular accounts at Gazprombank to pay for the fuel. Gazprombank would purchase roubles on behalf of the fuel purchaser and switch roubles to a different account, the order mentioned.

A supply instructed Reuters that funds for fuel delivered in April on some contracts began within the second half of April and Could for others, suggesting the faucets may not be turned off instantly.

Putin’s determination to implement rouble funds has boosted the Russian forex, which fell to historic lows after the Feb. 24 invasion. The rouble has since recovered a lot misplaced floor.

“What sounded grandiose has became a storm in a teacup. By making it the principle recipient of cash for fuel, it places an additional protect towards sanctions round Gazprombank,” mentioned Jack Sharples of the Oxford Institute for Power Research.

Western corporations and governments have rejected any transfer to alter their fuel provide contracts to a different cost forex. Most European patrons use euros. Executives say it will take months or longer to renegotiate phrases.

Fee in roubles would additionally blunt the affect of Western curbs on Moscow’s entry to its international alternate reserves.

In the meantime, European states have been racing to safe different provides, however with the worldwide market already tight, they’ve few choices. The US has provided extra of its liquefied pure fuel (LNG) however not sufficient to exchange Russia.

“It is vital for us to not give a sign that we are going to be blackmailed by Putin,” Germany Financial system Minister Robert Habeck mentioned, including that Russia had not been in a position to divide Europe.

Funds would proceed to be made in euros, Germany mentioned.

French economic system minister Bruno Le Maire mentioned France and Germany have been making ready for the opportunity of Russian fuel flows being halted. He declined to touch upon technical particulars linked to newest Russian calls for for rouble cost.

Putin mentioned the change to roubles would strengthen Russia’s sovereignty. He mentioned the West was utilizing the monetary system as a weapon, and it made no sense for Russia to commerce in {dollars} and euros when belongings in these currencies have been being frozen.

“What is definitely occurring, what has already occurred? We now have provided European shoppers with our sources, on this case fuel. They obtained it, paid us in euros, which they then froze themselves. On this regard, there may be each cause to consider that we delivered a part of the fuel supplied to Europe virtually freed from cost,” he mentioned.

“That, after all, can not proceed,” Putin mentioned, though he mentioned Russia nonetheless valued its enterprise repute and would proceed to fulfill obligations in its fuel and different contracts.

STAYING UNITED

European fuel costs have rocketed larger on mounting rigidity with Russia elevating the danger of recession. Firms, together with makers of metal and chemical substances, have been compelled to curtail manufacturing.

British and Dutch fuel costs have been up 4% to five% after Putin’s announcement.

European corporations had little or no quick touch upon the Russian announcement or on their contracts with Gazprom, which has a monopoly on Russian fuel exports by pipeline.

Poland’s PGNiG mentioned it remained in touch with Gazprom with which it has a long-term contract that expires on the finish of this 12 months, however it mentioned it will not focus on particulars.

Italian vitality agency Eni, one other main European purchaser of Russian fuel, additionally had no remark. It purchased round 22.5 bcm of Russian fuel in 2020. Its contracts with Gazprom expire in 2035.

Danish vitality agency Orsted, which has a long-term take-or-pay contract with Gazprom, mentioned it was ready to listen to from the Russian agency and declined to remark additional.

Uniper and EnBW’s VNG, two main German patrons of Russian fuel, declined to remark, whereas RWE didn’t instantly reply.

(Reporting by Reuters correspondents together with Stephen Jewkes in Milan, Vera Eckert, Joseph Nasr and Tassilo Hummel in Berlin, Nina Chestney in London, Marek Strzelecki in Warsaw and Christoph Steitz and John O’Donnell in Frankfurt; Writing by Mark Trevelyan; Modifying by Edmund Blair and Grant McCool)