(Bloomberg) — Energy prices in Europe surged after Russian President Vladimir Putin said his country will require ruble payments from natural gas buyers deemed “unfriendly.”
Benchmark gas futures rose more than 30%, according to power and coal values. In a meeting with his government, Putin will surely ask the central bank to develop a mechanism for making ruble payments for gas within a week. While Russia named the United States, the United Kingdom and members of the European Union as hostile nations, he said it would continue to supply gas according to orders.
The announcement brought back fears about the stability of supplies from Russia after a few days of relatively quiet trading. Putin’s plan may significantly be a game changer for long-term gas contracts in Europe, the price of which is priced primarily in euros. Any supply disruption as a result of rule changes would worsen Europe’s energy crisis. The required region of Russia is less than 40% of the gas.
“Russia apparently still wants trade routes with the US, UK and Europe, but in its own way,” said Tim Partridge, head of energy trading at DB Group Europe.
The largest customer, Germany, said the switch to rubles is a breach of contract. The second largest buyer, Italy, said it is not willing to pay in rubles. Payment in rubles would be a way to escape sanctions, Francesco Giavazzi, economic adviser to Prime Minister Mario Draghi, said at the Bloomberg Capital Markets Forum in Milan. Austria’s OMV AG said its gas contracts with Russia do not stipulate payments in rubles.
The announcement comes just as the US and partner nations are expected to announce new Russian actions on Thursday aimed at improving European energy security and reducing Europe’s dependence on gas.
Europe’s energy prices soar as Russia seeks rubles for its gas
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