Putin wants ‘unfriendly’ countries to pay for Russian gas in rubles
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April 4, 2014: The Salym Central Processing Plant for Oil and Gas. Salym Petroleum Development, a joint venture of Shell and Gazprom Nft.
Andrey Rudakov | Bloomberg | Getty Images
Russia is going to demand payment in rubles from countries that sell gas, Vladimir Putin stated on Wednesday. This sent gas prices skyrocketing because of concerns about the possibility of a worsening energy crisis.
The dependence of European countries on Russian gas exports and natural gas has come to the fore since the February 24th invasion of Ukraine by Moscow and subsequent Western sanctions that were imposed in an effort to isolish Russia economically.
Putin stated that Russia will supply natural gas according to volumes and prices as per previously agreed contracts. This was during a meeting with high-ranking government ministers.
He said that only the change will affect payment currency, which will now be converted to Russian rubles.
Russia is responsible for 40% of Europe’s gas consumption. EU gas imports have fluctuated from 200 to 800 million euros ($880million) per day this year. Some wholesale gas prices in Europe and Britain rose around 15% on Wednesday due to the possibility of a currency change that could disrupt this trade.
The Russian ruble surged briefly to surpass 95 USD against the dollar in three weeks, before it settled close to 100 following the shocking announcement.
Putin claimed that Russia’s central bank and government would have to find a way to convert these transactions into Russian currency within one week. Gazprom will also be required to modify the contracts.
Some big Russian gas buyers were unable to immediately clarify their plans for paying gas, due to the reluctance of major banks to deal in Russian assets.
We are not able to make any comment at the moment. “We will get in touch when we form an opinion,” stated a spokesperson at Uniper Germany.
Moscow describes its actions against Ukraine as a special military operation to “denazify and disarm its neighbor.” Allies of the West and Ukraine consider this an absurd pretext for war that could lead to wider conflicts in Europe.
Breach of regulations
Gazprom reported that 58% (of its natural gas exports to Europe, and other countries) were settled using euros as of January 27, 2012. US dollars made up 39% and sterling 3% of the gross sales.
According to the European Commission, it intends to reduce EU dependence on Russian gas by 2/3 this year and eliminate its dependence on Russian fuel supplies “well before 2030”.
Despite their dependence on Russia, the EU countries haven’t agreed to sanction Russia for its energy sector. The Commission is the executive of 27 EU countries. It did not respond immediately to a request for comment.
It is unclear if Russia’s decision breaches contract rules.
According to a top Polish source, “this would be a violation of the payment rules contained in the existing contracts.” He also stated that Poland does not intend signing any new Gazprom contracts after the expiration of their long-term agreement at the end this year.
Russia created a “unfriendly” list that corresponds with those who imposed sanctions. A government commission must approve all deals that are made with individuals or companies from these countries.
This list includes members of the United States and European Union, Britain, Japan Canada, Norway, Singapore South Korea, Switzerland, Ukraine, Canada, Norway, Singapore, South Korea and Switzerland.
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