Putin balks over rubles-for-gas threat

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Vladimir Putin blinked.

The Russian president insisted last week that “unfriendly countries” will have to pay for Russian gas in rubles. He reiterated that demand on Thursday, but there is a huge loophole — the measure won’t apply to Russia’s European gas customers, even though they are included in the so-called “unfriendly country” grouping that has punished Russia for its invasion of Ukraine.

The Kremlin’s talk about gas contracts was very fierce on Thursday.

“In order to purchase Russian natural gas, [buyers] must open ruble accounts in Russian banks. It is from these accounts that payments will be made for gas delivered starting tomorrow,” Putin said in a televised address after signing a decree on gas sales to unfriendly countries.

Anyone who doesn’t pay in this way won’t get gas, he warned.

“If such payments are not made, we will consider this a default on the part of buyers with all the ensuing consequences,” Putin said. “No one is selling us anything for free, and we will not do charity work either. That is, the existing contracts will be stopped.”

But European customers won’t be bound by the new system, according to the leaders of Germany and Italy.

“Existing contracts remain in force,” Italy’s Prime Minister Mario Draghi said on Thursday, describing the outcome of a Wednesday call with Putin.

“European companies — and [Putin] has repeatedly pointed out that this is a concession, a regulation that applies only to European member countries — will continue to pay in euros or dollars,” Draghi said, adding: “The conversion from payment in euros or dollars to rubles is an internal matter for the Russian Federation. That’s what I understood.

“The feeling is that it is not at all easy to change the payment currency without changing the contracts,” he said.

Russia supplies about 40 percent of Europe’s natural gas, and the cash it earns from those sales is crucial to the country’s budget. The ruble threat is seen as a way for Moscow to boost demand for the ruble and so buttress its value. It had sagged as a result of the wide-ranging Western sanctions imposed against Russia for attacking Ukraine, but in recent days has regained much of its value.

Officials in Berlin indicated they received the same message as Draghi about the European loophole, after Chancellor Olaf Scholz also talked with Putin on Wednesday.

According to a German government readout, Putin told the German leader that gas deliveries would have to be settled in rubles as of April 1, but that “nothing would change for European contract partners.”

Payments would continue in euros or dollars and then Gazprom Bank — the intermediary for much of Europe’s gas payments to Russia — would convert the money into rubles.

“In any case, companies want, can and will pay in euros … I also made it clear in the conversation with the Russian president that this will remain the case,” Scholz said on Thursday.

“It is important for us not to give a signal of letting ourselves be blackmailed by Putin. And what they do with the money, as long as the banks are not subject to sanctions, is largely their business,” said Germany’s Economy and Climate Minister Robert Habeck.

The point was underlined by his French counterpart Bruno Le Maire, who made it clear that European customers would not bow to Putin’s demand.

“We do not accept paying gas contracts in a different currency than is foreseen in the contracts,” he said. “Contracts are contracts, and contracts must be strictly observed.”

America Hernandez, Hans von der Burchard, Zia Weise and Hannah Roberts contributed reporting.

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