A collective of seven of the world’s major economies will not comply with Russia’s request that its natural gas exports be paid for in roubles.
German energy minister Robert Habeck announced on March 28 that the G-7 members regard the demands as a “one-sided and clear breach of the existing contracts” in a statement to reporters.
“Payment in rouble is not acceptable and we will urge the companies affected not to follow (Russian President Vladimir) Putin’s demand,” Habeck said, according to AP News.
Last week, Putin announced countries considered to be “unfriendly” would have to pay for natural gas in Russia’s national currency. Those seeking to purchase natural gas will have to work with the nation’s central bank to acquire the currency.
“I have decided to implement … a series of measures to switch payments — we’ll start with that — for our natural gas supplies to so-called unfriendly countries into Russian rubles,” Putin said in a televised government meeting on March 23.
Putin said trust in the dollar and the euro has been compromised by the West’s sanctions. He asked the central bank, Gazprom, to submit a proposed plan to adopt the change by March 31.
Representatives from France, Germany, Italy, Japan, the United Kingdom and the United States met on March 25 to discuss Putin’s announcement and coordinate their responses. They were joined by officials from the European Union.
“Russia accounts for around 45% of EU gas imports, with pipeline exports to Europe normally paid for in euros,” per Business Insider.
Analysts told the outlet the move is a response to Western sanctions and an effort by the Russian president to shore up the Russian currency.
“At face value this appears to be an attempt to prop up the ruble by compelling gas buyers to buy the previously free-falling currency in order to pay,” Vinicius Romano, a senior analyst for Rystad Energy, said during an interview.
Ursula von der Leyen, the European Commission President, said Russia would not be permitted to use its energy resources to blackmail Europe. She said demanding other nations use roubles was an attempt to circumvent the sanctions already in place against Russia.
“This would be a unilateral decision and a clear breach of contract,” Von der Leyen said in a statement on March 24. “We will not allow our sanctions to be circumvented. The time when energy could be used to blackmail us is over.”
Natural gas prices have skyrocketed in Europe following Russia’s invasion of Ukraine.
United State President Joe Biden banned Russian energy imports earlier this month, although existing contracts were given 45 days to wind down.
Reaction to Putin’s announcement was mixed. EU leaders, including Belgian prime minister Alexander de Croo and Slovenian prime minister Janez Janša, told the press while attending the EU Summit that countries were unlikely to use the Russian currency.
Other experts said dependency on Russian gas could drive a rush on roubles.
Richard A. Werner, a German economist, predicted a “scramble for rubles” online because of the necessity of natural gas in Europe.
Steffen Murau, a research fellow at the Global Development Policy Center of Boston University, told the EU Observer, “If Putin’s move works out and the EU will need to get rubles, Russia is less at risk that their proceeds would be frozen.”
“[Putin] wants to take everybody down. He doesn’t win anything if the West declines and stops gas imports,” Murau said.
Putin’s announcement had an immediate impact on the rouble, which strengthened significantly after weeks of decline following the start of the conflict with Ukraine.