Russian President Vladimir Putin has begun to take retaliation for the international sanctions imposed on his country. According to Reuters, Russia will demand payments in rubles for gas sold to hostile countries.
European gas prices immediately jumped amid concerns the policy will exacerbate the region's energy crisis.
Reuters reported that European countries and the United States had imposed tough sanctions on Russia since Moscow sent troops to Ukraine on February 24. On the other hand, Europe relies heavily on Russian gas for heating and power generation.
This condition has left the European Union divided over whether to impose sanctions on Russia's energy sector.
Putin's message is clear: If you want our gas, buy our currency.
It remains unclear whether Russia has the power to unilaterally modify existing contracts agreed in euros.
Shortly after the announcement, the ruble briefly strengthened to a three-week high past 95 against the dollar. The ruble closed at 97.7 against the dollar. That level is still down more than 22% since February 24.
Meanwhile, some European gas prices rose by up to 30% on Wednesday. Gas prices in the UK and the Netherlands also soared.
Russian gas accounts for about 40% of total European consumption. EU gas imports from Russia this year fluctuated between 200 million and 800 million euros (US$ 880 million) per day.
"Russia will continue, of course, to supply natural gas according to volumes and prices ... remaining within the previously agreed contracts," Putin said at a televised meeting with government ministers.
"The changes will only affect the payment currency, which will be converted into Russian rubles," he said.
German Economy Minister Robert Habeck called Putin's request a breach of contract and other Russian gas buyers echoed the point.
"This is a violation of the payment rules included in the current contract," said a senior Polish government source, adding Poland had no intention of signing a new contract with Gazprom after their existing deal expires at the end of this year.
Big banks are reluctant to trade Russian assets, further complicating Putin's request.
A spokesman for Dutch gas supplier Eneco, which buys 15% of its gas from a subsidiary of Russian gas giant Gazprom, Wingas GmbH, said it had long-term euro-denominated contracts.
"I can't imagine we would agree to change those terms," he said.
According to Gazprom, 58% of natural gas sales to Europe and other countries on January 27 were settled in euros. The US dollar accounts for about 39% of gross sales and sterling about 3%. Commodities traded around the world are mostly traded in US dollars or euros, which make up about 80% of the world's currency reserves.
One week deadline
Putin said the government and the central bank had one week to find a solution on moving operations to Russian currency and that Gazprom would be ordered to make appropriate changes to the contract.
On the gas market on Wednesday, data from pipeline operator Gascade showed gas flows eastward via the Yamal-Europe pipeline from Germany to Poland declined sharply.
"Steps taken by Russia could also be interpreted as provocative and could raise the possibility that Western countries tighten sanctions on Russian energy," said Liam Peach, Europe economist at Capital Economics.
The European Commission said it plans to reduce the EU's dependence on Russian gas by two-thirds this year and end its dependence on Russian supplies "well before 2030."
However, unlike the United States and Britain, the European Union countries do not sanction Russia's energy sector.
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