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Putin only wants gas deliveries to be paid for in rubles

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Russian gas deliveries will be billed in rubles in the future. President Vladimir Putin announced at a televised cabinet meeting on Wednesday that he intends to change the method of payment for deliveries to “hostile countries.” Of course, Russia will fulfill its contractual obligations in terms of volume and prices.

Consequently, the changes only affect the currency. The Moscow government and central bank would clarify the exact details of the implementation within a week. The energy company Gazprom was urged to modify the contracts accordingly.

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Due to the Russian attack on Ukraine, numerous Western countries have imposed extensive sanctions on Russia. Among other things, Russian assets were frozen abroad. Above all, the EU is highly dependent on Russian oil and gas supplies and is therefore hesitant about an energy boycott. The German government has repeatedly stated that it does not want to take this step.

According to data from the end of January, 58 percent of Gazprom’s shipments to Europe and other countries were settled in euros. Russia’s list of “hostile states” includes countries that have imposed sanctions on companies and individuals. These include the US, EU members, Great Britain, Japan, Canada, Norway, Singapore, South Korea, Switzerland, and Ukraine.

In response to Putin’s announcement, the ruble appreciated on Wednesday. At times, it rose against the dollar to its highest level in three weeks. It fell to an all-time low in March after the Ukraine invasion, but has since recovered somewhat.

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Jens Südekum, professor at the Institute for Competition Economics at the Heinrich Heine University in Düsseldorf, spoke of an escalation. “This is an escalation of the economic war,” he told the Reuters news agency. “Not many expected this barrage.”

For Südekum, this represents a clear breach of contract: “There are long-term contracts for gas supply that are denominated in dollars. If Putin now declares that he only accepts rubles, he is breaking these contracts.” The West will now have to react in some way. “An embargo on energy imports from Russia has now become more likely.”

The German gas industry is worried about the Russian announcement. “It is with great irritation that we hear the report that Russia only wants to process gas deliveries in rubles,” said the managing director of the “Zukunft Gas” association. The effects cannot yet be estimated. But it seems that the sanctions are working and that Putin is under increasing pressure.

Meanwhile, Russian Deputy Prime Minister Alexander Novak has warned the West against an energy boycott. World oil and gas markets would collapse if extensive sanctions were also applied against Russia in the energy sector. In the oil sector, there is currently a bottleneck in global markets of around one million barrels per day. Europe is threatened by diesel shortages, where stocks are at their lowest level since 2008.

The EU is considering new sanctions against Russia. The foreign ministers recently found no consensus on this, and the heads of state and government of the 27 EU countries will meet on Thursday and Friday. The US and Britain, less dependent on supplies from Russia, have already announced measures in the oil sector.

The German industry association BDI warned against rash measures with incalculable consequences. “The EU is not ready for a comprehensive energy embargo any time soon,” BDI President Siegfried Russwurm said. “It would put their unity and ability to act economically and politically at risk.” (Reuters)

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