Abrupt goodbye to the phase of relative calm in which natural gas prices had settled in recent days. The announcement by Russian President Vladimir Putin that he will force “hostile” countries to pay in rubles for purchases of this fuel has shot up the price of gas in Europe this Wednesday to 112 euros per megawatt hour (MWh), 13 % more than in the opening. The rise reached around 30% at the halfway point of the day, but the price is still far from the almost 230 euros at which it was listed in the first week of March. A few hours after the closing, for its part, oil climbed almost 5% to 120 dollars per barrel.
“Russia will, of course, continue to offer natural gas in the volume and at the price agreed in the contracts,” Putin said in a televised meeting with the main ministers of his government. “The changes only affect the payment currency, which will become the ruble.” The Russian central bank will now have a week to reach a solution that puts the measure into practice, which will ultimately have to be carried out by the state gas company Gazprom.
With this turn, the Russian president puts the largest importers of its gas, such as Germany, before the dilemma of skipping the general blockade on the ruble or giving up its main source of supply. It is also an attempt to support its currency after the severe punishment suffered in recent weeks, which has taken it to record lows in crosses against the main international currencies (the dollar and the euro). This Wednesday, the market responded to the announcement with a slight recovery of the ruble that hardly serves, however, to minimally reduce the losses accumulated in the last month.
“Russia seems to want to maintain trade routes with the United States, the United Kingdom and the EU, but in its own way,” summarizes the head of trading of the energy company DB Group EuropeTim Partridge, speaking to Bloomberg.
Since the beginning of the Russian invasion of Ukraine, on February 24, EU countries have transferred to Russia more than 18,000 million euros as payment for imports of gas (11,500 million), oil (6,300) and coal ( 500), according to an accountant of the Center for Research on Energy and Clean Air, a group of analysts specialized in energy transition. That money is essential so that the Kremlin, which is already beginning to suffer the impact of Western sanctions on its economy, can finance its expensive military campaign.
40% of the natural gas consumed by the Twenty-seven comes from Russia, a dependency that reaches 100% in some Eastern European countries, any rise in the price of this raw material is transferred almost automatically to the electricity markets.
He knows in depth all the sides of the coin.
Several Western energy companies consulted by Reuters declined to comment on Putin’s decision. Some governments, such as the German or the Polish, do believe, however, that the measure would mean a “break” —the first— “breach” —the second— of what was signed in the contracts. Warsaw, adds an official source in statements to the British news agency, has no intention of sealing any other agreement with Gazprom when – at the end of the year – the one currently in force expires.
Neither Italy, the second largest client of Russian gas after Germany, is for the work of changing the currency in which they pay the fuel to Russia. “Using rubles would somehow dodge sanctions. So I think we will continue to pay in euros,” Francesco Giavazzi, one of the chief economic advisers to Italian Prime Minister Mario Draghi, stressed at a forum organized by Bloomberg. The vast majority of contracts with EU countries —whether or not they are members of the eurozone— are denominated in the single currency.
The obligation to pay for your gas in local currency was not the only message sent by Moscow to its EU neighbors on Wednesday. The largest supplier of fossil energy in the Twenty-seven has warned the block that the sanctions imposed will end up hitting European consumers. “Western countries may be forced to limit or ration fuel consumption,” said Russian Deputy Prime Minister Alexander Novak, who two weeks ago threatened his western neighbors to turn off gas taps in response to sanctions. “European politicians should explain to their citizens where the myopia of their decisions can lead.”