The leaders of the major industrialized countries are not going to bow to Vladimir Putin’s demand to pay for gas supplies in rubles. The G-7 countries agreed on Monday to continue to show their unity before Moscow and flatly reject the purchase of Russian currency to pay the energy bill. Putin’s imposition is “inadmissible,” assured the German Economy and Climate Minister, Robert Habeck, after a virtual meeting with the group’s energy ministers. The unknown now is whether Russia will continue to deliver the gas when it finds that the West does not respect its new conditions.
The Russian president announced last week that he was going to demand payment in rubles from “hostile countries”, including the European Union, which depends 40% on Russian gas imports. The G-7 ministers agreed that Putin’s demand represents “a unilateral and clear breach of existing contracts,” Habeck said. Germany now chairs the group of states, which includes Germany, France, Italy, Japan, Canada, the United States and the United Kingdom. Representatives of the EU also participated in the meeting. If the contracts are valid, companies must continue to respect what is specified in them, Habeck added: “That means that payment in rubles is unacceptable.”
The counter sanction Putin’s government is not only intended to provoke the allies and try to provoke fissures, but also to strengthen the ruble and prop up the Russian central bank, practically isolated from international markets due to Western sanctions. In the current situation, obtaining the large sums of rubles needed to pay the huge gas bill is not easy in the foreign exchange markets, so it would be necessary to resort to the Russian central bank, thus breaking its own sanctions.
“We will not give away free gas”
Putin signed on Monday the decree by which the cabinet of ministers, the central bank and Gazprom, the company with the state monopoly for gas exports, must agree on the mechanism to convert gas contracts already signed in other currencies into rubles. with the countries of the European Union. The conflict continues to escalate and no one dares to venture if it could end in a supply cut. The Russian president’s spokesman did not detail on Monday what Moscow will do if Europe refuses to pay in rubles. “We’ll deal with problems as they come, but the fact that we won’t be handing out free gas is indisputable. In our situation, charity towards Europe is neither possible nor convenient”, said Dmitri Peskov.
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“We are prepared for all scenarios,” Habeck replied in Berlin when asked what would happen if Moscow turned off the tap on hydrocarbons. The German minister asked the affected companies – it is the companies and not the States that buy gas from Gazprom – “not to respond to Putin’s request”. And as Foreign Minister Olaf Scholz had already done after learning of the Russian president’s demand last week, he accused Moscow of being “an unreliable supplier.”
“I think this demand should be interpreted as a sign that Putin is between a rock and a hard place,” Habeck added, referring to Western sanctions seriously damaging the Russian economy.
Western companies often have long-term supply agreements signed for Russian gas imports and it is not yet known how Moscow will implement the change in the currency of payment, which is specified in the clauses. Most contracts are in euros or dollars. Some companies have already spoken out. The French Engie and the Austrian OMV have stressed that the contracts do not allow payment in rubles and that, therefore, they will continue to pay in euros or dollars.
Analysts such as Katja Yafimava of Oxford University’s Institute for Energy Studies believe that Gazprom will continue to supply gas. “He is not interested in isolating Europe and giving the Europeans a pretext to try to end their contracts before they expire,” she explains by email. The modification would not in itself be a breach of contract, but the start of a change with which a European buyer “may or may not agree”. In any case, the contract cannot be changed unilaterally, she explains. If a company continues to pay in euros, Gazprom could submit the dispute to arbitration.
Towards independence from Russian gas
The European Union has so far avoided imposing sanctions on energy imports from Moscow, as have the United States and the United Kingdom, which are much less dependent on Russian oil and gas. Washington made a commitment last week with Brussels to increase its shipments of liquefied natural gas (LNG) to the EU to speed up the closure of the Russian tap. This agreement is part of Brussels’ effort to try to reduce dependence on Russian gas by two thirds before the end of the year. That is, to go from more than 150,000 to 50,000 million cubic meters. For this, it is already negotiating with new suppliers, such as the United States itself, Qatar and Norway.
The German economy minister traveled to Qatar and the United Arab Emirates last week to seek quick alternatives to Russian gas supplies. There he presented his goals to drastically reduce dependence on Russian energy. Berlin, which until now imported 55% of the gas it consumes and a third of its oil from Russia, will become “virtually independent” of the latter by the end of this year and has pledged to completely abandon gas by mid-2024.
The Kremlin also instructed Gazprom on Monday to maintain its supply volumes once the payment system changes, although the time frame that European clients will have is minimal: Russian Finance Minister Anton Siluanov added that the mechanism for charging in rubles “is still in development”.
“The process for gas deliveries is very, very complicated. It’s not like picking up anything in the store and paying. There are the supplies, the payments and making balances,” added Peskov. According to a study by the state-run Interfax news agency, Russia posted record revenues of some 8.86 billion euros in January from gas exports. Of this figure, around 5.5 billion euros came from hostile countries.