Russia asks Europe to pay for gas export in rules or will make other decisions

March 29, 2022 - 15:58

Russian President Vladimir Putin has ordered the Russian central bank, the government, and Gazprom to present proposals by March 31 for gas payments in rubles from "unfriendly countries," including all European Union states.

Russia is working out methods for accepting payments for its natural-gas exports in rubles and it will make decisions in due course should European countries refuse to pay in the Russian currency, the Kremlin said on March 28.

"We are not going to supply gas for free, this is clear," Kremlin spokesman Dmitry Peskov told a conference call. "In our situation, it is hardly possible and appropriate to engage in charity" with European customers.

But the Group of Seven major economies has agreed to reject the demand, the German energy minister said on March 28.

Robert Habeck told reporters that "all G7 ministers agreed completely that this (would be) a one-sided and clear breach of the existing contracts."

He said officials from France, Germany, Italy, Japan, the United States, the United Kingdom, and Canada met on March 25 to coordinate their position and that EU representatives were also present.

Habeck said that "payment in ruble is not acceptable and we will urge the companies affected not to follow Putin's demand."

Putin said on March 23 that Russia will implement the changes and stop accepting payments in currencies that have been "compromised" within one week.

The announcement means that European Union members who have imposed sanctions on Russia, along with Britain, Canada, Japan, Switzerland, Ukraine, and the United States, will have to buy rubles with their euros or U.S. dollars at rates fixed by Russia's central bank to pay for the gas delivered from Russia. The move would bolster the ruble by raising demand for it.

The announcement on March 23 immediately raised concerns over the security of supply, and companies and EU states have scrambled to understand the ramifications while questioning its legality.

Carlos Diaz, a gas and power analyst at Oslo-based Rystad Energy, told RFE/RL that Russia's existing long-term gas-export contracts with European countries stipulate payment in dollars and euros.

In order to be paid in rubles, Russia would have to renegotiate those contracts, opening the door for European countries to drastically cut the amount of gas they are required to buy from Kremlin-controlled Gazprom each year as well as the length of the contract, he said.

If Russia tries to force the situation, European countries can take Russia to arbitration court, a process that can last months or years, Diaz said.

"There's a lot of legal aspects that need to be sorted out before you can actually just change a clause in the contract. [Putin's demand is] practically impossible," he said.

On March 25, German Finance Minister Christian Lindner advised German energy providers not to pay for Russian gas in rubles, in an interview with broadcaster Welt.

Italy will continue paying Russia for energy in euros, a top economic adviser to the Italian government said last week.

"The only big issue in Europe is gas and Russia is asking us to pay in rubles which we don't have and it's not in the contract," the chief executive of Italian energy group Eni , Claudio Descalzi, said on March 28 at an industry event in the United Arab Emirates.

Poland's PGNiG, which has a contract with Gazprom until the end of the year, has also said it cannot simply switch to paying in rubles.

The EU aims to cut its dependency on Russian gas by two-thirds this year and end Russian fossil fuel imports by 2027.

On March 25, the United States said it will work to supply 15 billion cubic meters of liquefied natural gas (LNG) to the European Union this year.

U.S. LNG plants are producing at full capacity and analysts say most of any additional U.S. gas sent to Europe would have to come from exports that would have gone elsewhere.

Leave a Comment

6 + 3 =