FSUOGM: Russian requires ruble payments within days

The Kremlin has warned its Western adversaries that Russia’s state-owned gas supplier Gazprom will demand payment for its supplies in rubles within days, in what marks Moscow’s toughest response to Western sanctions imposed for the invasion of Ukraine.

Russian President Vladimir Putin has described Western sanctions as akin to economic warfare, and announced on March 23 that all payments for Russian gas by so-called “unfriendly states” should be paid in rubles, and has instructed Russia’s Central Bank and Gazprom to put the requirement in place within a week. Putin has long wanted the ruble to play a greater role in Russia’s international trade, although buyers of Russian gas have rejected such proposals because of concerns about the ruble’s instability.

Putin’s announcement caused European gas prices to spike, as the market is clearly jittery about how the plan will work in practice, especially as a number of European countries have signalled they will not settle in rubles.

German Chancellor Olaf Scholz said on March 24 that most existing gas supply agreements between Russia and foreign buyers were denominated either in euros or US dollars.

“We’ve looked at this to try to get an overview. What we have learned so far is that there are fixed contracts everywhere, which include the currency in which payments are made,” Scholz told reporters in Berlin. “And most of the time it says euro or dollar … and that’s what counts then.”

German Economy Minister Robert Habeck added that the ruble demand would be a breach of contract. Germany is the largest buyer of Russian gas in Europe, using Gazprom’s supplies to cover two thirds of demand. In Poland, where Gazprom meets a third of demand, state-owned gas importer PGNiG has also said it will refuse to pay in rubles.

“We don’t see how we could,” PGNiG head Pawel Majewski was quoted as saying on March 24. “The contract … sets the means of payment. It does not allow one party to modify this according to its will.”

Austrian oil company OMV’s CEO Alfred Stern has confirmed that its contract with Gazprom does not allow for ruble payments, as has Lithuania’s Latvijas Gaze.

Some buyers already pay rubles to Gazprom, however, including the governments of Bulgaria, Moldova and Serbia.

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