Is EU Going To Pay In Ruble For Russia Gas?

Russian Gas pipeline

LONDON, (Parliament Politics Magazine) – On Thursday, Russia’s President Putin reaffirmed that whoever intends to export Natural Gas from Russia should do so in Ruble. A rejection came from French and German authorities, who claimed to be ready for a Russian supply cutoff and refused to accept the proposal. It’s a condition that European politicians say they won’t comply with since it’s against the terms of their contracts and sanctions imposed. In a statement, Germany‘s economics minister warned Europe would not be “blackmailed” by Putin.

Why do Russia Demand EU Countries to pay in Ruble for Russian Gas?

Since the Russia – Ukraine crisis on February 24th, there has been a severe sanctions war between European countries and the US. Europe relies on Russia’s gas supply for heating and power production, and the EU is divided on whether to criticise Russia’s energy industry.

Putin has clearly stated that if EU countries want Gas Supplies from Russia, they will have to purchase them in Ruble. It became unclear if Russia could unilaterally alter current euro-based contracts.

The ruble momentarily surged to a three-week high of over 95 versus the dollar after the news. The currency had lost more than 22% since the 24th of February, when it was trading at 97.7 cents to the dollar.

And since almost 40% of Europe’s gas usage comes from Russia, it could become a problem for EU countries. This year, EU gas imports from Russia ranged from $200 million to $880 million per day.

Meanwhile, the German Economy Minister labelled Putin’s demand a violation of the contract. And other customers of Russian gas shared his sentiments.

According to a senior Polish spokesman, “This would represent a violation of payment terms present in the existing contracts”. Poland has no plans to sign new contracts with Russia once their current arrangement ends this year.

While the US and UK have imposed sanctions on Russia’s energy industry, EU countries have not. When contacted for comment, the EU’s executive body of 27 member states remained unresponsive.

Un-friendly Relations Between Russia and EU Countries

Russia has created a list of “unfriendly” nations in response to the sanctions. And the government committee must sign off on any deals made with corporations or persons from designated nations.

The following nine countries are on the list of unfriendly nations during the Russia – Ukraine crisis. From which the US and Norway don’t even purchase Russian Gas.

  1. USA
  2. The United Kingdom, 
  3. Japan
  4. Canada
  5. Norway
  6. Singapore
  7. South Korea
  8. Switzerland, 
  9. and Ukraine.

A White House official states that the US is speaking with its partners on the matter and that each nation would make its own choice. The United States has already implemented a ban on Russian energy imports.

Gazprom, the Russian gas exporter, needs to sell 80% of its foreign currency revenues in rubles. Thus a move to rubles would have minimal effect on the Russian currency. According to the White House, Russia’s currency, the ruble, is no longer a reliable gauge of the country’s economic health.

Analysts at Evercore ISI believe that Vladimir Putin’s primary goal is to “show he can bind EU leaders to his way.” If Russia manages to get the European Union to pay in rubles, the European nations may respond by placing even greater taxes on Russian oil imports or completely prohibiting them. According to the experts, Russia may ultimately export the oil, but the price would drop.

Putin’s Warning to EU member Countries to Pay Russian Ruble For Gas

President Vladimir Putin has threatened to shut off Russian gas supply to “unfriendly” nations.  “They must open Russian rouble accounts. Starting April 1, and pay for gas with these accounts “, Putin announced on national television.

“If such payments are not made, we will consider our purchasers to have breached their responsibilities,” Putin warned. “High-ranking officials, public personalities and media professionals” are also named.

In addition to the US, Russia’s list of “unfriendly” nations now contains Australia, Canada, and New Zealand.

Outcome For EU Countries

Putin’s spokesperson Dmitry Peskov claims that the new payment mechanism will not influence contract prices. According to him, nations who receive Russian gas “simply have to pay rubles for the amount set in the gas contract.”

In the light of recent events, the EU intends to reduce Russian gas imports by two-thirds this year. However, the EU refrained from imposing an energy embargo.

While paying for gas in rubles might help Russia’s currency, it would also reduce the foreign exchange inflow of the country. Putin has signalled it may demand rouble payments for additional exports too.

Beth Malcolm

Beth Malcolm is Scottish based Journalist at Heriot-Watt University studying French and British Sign Language. She is originally from the north west of England but is living in Edinburgh to complete her studies.