Vladimir Putin instructs change in payment currency for gas supplies to rubles by March 31

Russia’s President Vladimir Putin on Monday announced the March 31 deadline for switching the currency of payment for gas supplies to Ruble. At a meeting of the Cabinet of Ministers, the Bank of Russia, and the company Gazprom, Putin said that the “unfriendly countries” must adhere to the list of instructions published by the Kremlin to avert the gas supply cuts. Russia’s Duma is also in process of approving a state directive to amend existing Gazprom gas supply contracts and replace its payment currency system. The ‘list of instructions’ published by the Kremlin on its website, the foreign buyers are required to “maintain contract volumes, pricing, and pricing principles” by March 31. 

President Putin has also demanded a report on instructions until March 31. Russia's Prime Minister Mikhail Mishustin, head of the Central Bank Elvira Nabiullina and head of Gazprom Alexei Miller have been appointed to implement the gas export payment switch. 

Moscow to renew contracts for payment of gas supply in rubles

Subsequently, Russia’s Central Bank, in coordination with the Cabinet of Ministers will renew the contracts for payment of gas supply in rubles. It will also make arrangements for the purchase of Russian rubles by energy buyers in the domestic foreign exchange market. “The government of the Russian Federation, together with the Bank Of Russia and the public joint-stock company Gazprom, have taken measures to change the currency of natural gas payments to the EU and other countries, and introduced restrictive measures against Russian citizens and Russian legal entities,” the document released by Kremlin read on March 28. 

Russia’s President Vladimir Putin had instructed the 'unfriendly countries' that Russia will only accept payment in its currency as the unprecedented Western sanctions depreciated the Ruble. While the gas prices soared, Putin's announcement came as an effort to strengthen Ruble's worth. The value of the Russian currency soared against the Dollar and Euro shortly after Russia's President clarified that he would no longer be accepting the foreign currency for gas export. Putin derided the West’s sanctions targeting Kremlin, as he told his officials that the “unfriendly nations” were "effectively drawing a line over the reliability of their currencies, undermining the trust for those currencies.

 A Russian construction worker speaks on a mobile phone during a ceremony marking the start of Nord Stream pipeline construction in Portovaya Bay some 170 kms (106 miles) north-west from St. Petersburg, Russia. Credit: AP

Tugboats in position on the Russian pipe-laying vessel "Fortuna", being used for construction work on the German-Russian Nord Stream 2 gas pipeline in the Baltic Sea, in the port of Wismar. Credit: AP

At a Group of Seven (G7) press conference in Brussels, the European leaders including German chancellor Olaf Scholz rejected such a prospect, stating that payment in Russian currency will render the fixed contracts with companies that mentioned euros or dollar currency as 'null and void.’ 'I don't think anybody in Europe really knows how rubles look like,' the Slovene Prime Minister Janez Jansa also said. 'Nobody will pay in rubles,' he stated. Italian Prime Minister Mario Draghi, the former chief of the European Central Bank, also backed the decision. He rejected the plan saying, "We consider it a violation of existing contracts.” Brussels, however, only slashed the Russian gas imports by two-thirds and has been mulling a total oil embargo by the end of the year.

“The announcement of paying in rubles is a breach of the contract and we will now discuss with our European partners how we would react to that,” said German Economy Minister Robert Habeck had told reporters in Berlin. 

Credit: AP

US to supply 50 bcm/year of additional LNG to EU

At a summit in Brussels, US President Joe Biden also announced that the United States would deliver at least 15 billion cubic meters (bcm) of liquefied natural gas (LNG) to Europe to cut off the EU's reliance on Russian energy. US plans to supply approximately 50 bcm/year of additional LNG that is consistent with its shared net-zero goals to the EU until 2030.

Despite that announcement, the EU runs a risk of potential energy crisis as Russia supplies a third of the continent’s natural gas, and Washington boosting exports of liquefied natural gas to the EU might not cater to overall demand. Russia has pumped nearly 175 billion cubic meters of gas into Europe in the year 2021, nearly a quarter of it through the pipelines running through Ukraine, according to S&P Global Platts. Despite a barrage of sanctions it has restrained from cutting the exports to the EU, and pipelines through the Baltic Sea and Poland are still operating.

Image: AP