Russia warned the West on Friday that billing in roubles for billions of dollars of natural gas exports to Europe could be just days away, Moscow’s toughest response yet to crippling sanctions imposed by the West in response to Ukraine war.
With the Russian economy facing its gravest crisis since the years that followed the break-up of the Soviet Union, President Vladimir Putin on Wednesday hit back at the West, ordering that Russian gas exports should be paid for in roubles.
Putin said the West had declared economic war by freezing Russian assets, and so Russia saw no point in receiving dollars or euros for Russian exports anymore.
The Kremlin on Friday said Putin had ordered Gazprom , the world’s biggest natural gas company, which supplies 40% of Europe’s gas, to accept export payments in roubles, and that it had just four days left to work out how.
“There is an instruction to Gazprom from the president of the Russian Federation to accept payments in roubles,” Kremlin spokesperson Dmitry Peskov told reporters. “This information will be brought to the purchasers of Gazprom products.”
Gas buyers have been seeking guidance on how they could get the roubles to make any such payments, given the extent of the sanctions on Russia.
“Rouble payments are somewhere between very difficult and not possible for the majority of European buyers to organise, and certainly not at short notice,” Jonathan Stern, Distinguished Research Fellow at the Oxford Institute for Energy Studies, told Reuters.
If Gazprom insisted on rouble payments and stopped deliveries if payments were not made in roubles, “then in my view this would be a violation of contract terms,” he said.
Payments in roubles would shore up the Russian currency, which has plummeted since the invasion on Feb. 24. Putin’s speech lifted the rouble 9% against the dollar on Wednesday.
Meanwhile Dutch gas prices, the European benchmark, have spiked due to concerns over whether countries will be willing or even able to pay in roubles.
Putin’s move, announced just as the European Union was debating additional sanctions on Russia, amounts to one of the sharpest turns in Russian gas politics since the Soviets built gas pipelines to Europe from Siberia in the early 1970s.
The man who has been Russia’s paramount leader since 1999 has long railed against the dominance of the U.S. dollar, which he casts as an instrument of a U.S. “empire of lies” aimed at destroying Russia.
Moscow was blindsided by the West’s ability to freeze the $300 billion of Russia’s $640 billion “rainy day” reserve that was parked abroad.
Russia says the West has defaulted on its obligations to Russia, and that Moscow’s post-Soviet delusions about the West, and the use of dollars and euros, are over.
The Kremlin has refused to discuss just how far Putin could go with his bid to conduct trade in roubles; Russia is one of the world’s top exporters of oil, gas and metals – which are all largely priced and settled in U.S. dollars.
The mechanism by which up to $320 billion a year of gas exports will be paid for in roubles is still unclear. Euros account for 58% of Gazprom exports, U.S. dollars 39% and sterling around 3%, according to the company.
German Finance Minister Christian Lindner on Friday advised German energy providers not to pay for Russian gas in roubles, as demanded by Moscow.
Even the Communist Soviet Union accepted foreign currency for its energy exports, and it was not immediately clear if the change to rouble payments would amount to a breach of contract.
Many importers have said long-term contracts with Gazprom stipulate payment in either euros or U.S. dollars.
However, despite redoubling efforts to reduce their reliance on Russian gas, European consumers have few short-term options for covering their gas needs elsewhere.