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Wednesday, November 30, 2022

Kremlin demands ruble for gas, EU leaders push back

BERLIN ( Associated Press) — Russian President Vladimir Putin insisted Thursday that the country’s natural gas should be paid for with the ruble.One demand was apparently to help strengthen the Russian currency, but one European leaders say they will not comply with because it violates the terms of contracts and sanctions.

Putin said Russia would start accepting ruble payments from Friday and would cut gas supplies if buyers did not agree to new terms, including opening ruble accounts in Russian banks, leading to gas payments.

“If these payments are not made, we will consider it the buyer’s failure to meet its obligations, with all the consequences that lie ahead,” Putin said.

European leaders cautioned that they will continue to pay for natural gas in euros and dollars and want to see the fine print of how the Kremlin will implement its decree. It came a day after the leaders of Italy and Germany said they had received assurances from Putin about gas supplies.

Putin announced last week that countries deemed “unfriendly” to sanction Russia over the war in Ukraine For natural gas will have to be paid only in Russian currency. His proposal has raised natural gas prices and sparked fears it could lead to a supply disruption to Europe, which is heavily dependent on Russian natural gas and will struggle with sudden cutoffs. At the same time, Russia depends on oil and gas sales for most of its government revenue at a time when its economy is under severe strain from Western sanctions.

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Putin’s demand appears to be part of Russia’s efforts to boost the ruble after the currency fell under Western sanctions. After falling to 143 rubles against the dollar in early March, it took 82 rubles to buy a dollar on Thursday, around the same level that Russia launched its offensive.

Economists say converting gas payments to rubles will do little to support the Russian currency, as gas exporter Gazprom has to sell 80% of its foreign exchange earnings for the ruble anyway. The White House said on Thursday that the ruble is no longer a reliable measure of Russia’s economy because it is being pushed forward artificially.

Analysts at Evercore ISI said Putin’s primary motive is to “prove that he can bend EU leaders to his will.” He also said that even if Russia is able to force the EU to pay for gas in rubles, European countries could retaliate by imposing higher tariffs on Russian oil imports or by imposing them outright sanctions. Analysts said Russia may eventually sell oil, but the price is likely to be heavily discounted.

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The decree was signed by Putin and state news agency RIA Novosti published that a designated bank would open two accounts for each buyer, one in foreign currency and one in ruble. The buyer would make the payment in foreign currency and authorize the bank to sell it for rubles on the Moscow currency exchange. Then the ruble will be placed in another account, where the gas is formally purchased.

“People are wondering what Putin is doing,” said Tim Ashe, senior emerging markets sovereign strategist at Bluebay Asset Management. Putin may have read the German government’s reluctance to boycott Russian energy as “weakness and now trying to reverse engineer this energy crisis…”

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D’Amilio from Rome contributed. Associated Press reporter Colleen Barry in Milan contributed.

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