Russian president Vladimir Putin threatened on Thursday to halt contracts supplying Europe with a third of its gas unless they are paid in Russian currency, his strongest economic riposte so far to crushing western sanctions over his invasion of Ukraine.
European governments rejected Mr Putin’s ultimatum for Friday, with the continent’s biggest recipient of Russian gas, Germany, calling it “blackmail”. Moscow did, however, offer a mechanism for buyers to obtain roubles via a Russian bank.
The energy showdown has huge ramifications for Europe as US officials circle the globe to keep pressure on Mr Putin to stop a five-week invasion that has uprooted a quarter of Ukraine’s population.
Europe wants to wean itself off Russian energy but that risks further inflating soaring fuel prices. Russia has a huge revenue source at stake even as it reels from sanctions.
Facing stiff resistance from Ukraine’s military, Mr Putin has played one of his biggest cards in the demand on European energy buyers.
“They must open rouble accounts in Russian banks. It is from these accounts that payments will be made for gas delivered starting from tomorrow,” he said on Thursday.
“If such payments are not made [in roubles], we will consider this a default on the part of buyers, with all the ensuing consequences . . . existing contracts will be stopped.”
With the war exacerbating global fuel prices, US president Joe Biden launched the largest release ever from the country’s oil reserve and challenged oil giants to drill more to bring down gas prices.
“This is a moment of consequence and peril for the world,” said Mr Biden at the White House as he announced a release of 180 million barrels starting in May. But that amount fails to cover a US loss of Russian oil, which Mr Biden banned this month.
Western governments say Mr Putin’s demand for rouble payments would be a breach of contracts in euros or dollars. Germany and Austria declared “early warnings” on gas supplies, but no EU country has yet signalled it is facing a supply emergency.
An order signed by Mr Putin allows customers to send foreign currency to a designated account at Russia’s Gazprombank, which would then return roubles for the gas buyer to make payment.
War in Ukraine and haulage strike sees Spanish inflation hit 37-year high.“Russia would have to physically halt gas flows to EU 27 to force the issue, marking an escalation not even performed at the height of the cold war. It would mark another major financial blow to Russia’s coffers,” said analysts at Fitch Solutions.
British and Dutch gas prices were up 4 per cent to 5 per cent after Mr Putin’s announcement.
“The parties concerned have not heard from Gazprom yet. However, we should be united and not allow ourselves to be divided between politics and business in Europe,” said Timm Kehler, managing director of German gas industry lobby Zukunft Gas.
European companies had little or no immediate comment on the Russian announcement or on their contracts with Gazprom, which has a monopoly on Russian gas exports by pipeline.
Poland’s PGNiG said it remained in contact with Gazprom with which it has a long-term contract that expires at the end of this year, but it said it would not discuss details.
The Polish climate ministry had no immediate comment.
Italian energy firm Eni, another big European buyer of Russian gas, also had no comment.
Danish energy firm Orsted, which has a long-term take-or-pay contract with Gazprom, said it was waiting to hear from the Russian firm and declined to comment further.
Uniper and EnBW’s VNG, two big German buyers of Russian gas, declined to comment, while RWE did not immediately respond.
At talks this week, Moscow said it would scale back offensives near the capital Kyiv and north as a goodwill gesture and focus on “liberating” the southeastern Donbas region.
Kyiv and its allies say Moscow is simply trying to regroup following losses after a Ukrainian counteroffensive that has recaptured suburbs of the capital plus strategic towns and villages in the northeast and southwest.
Peace negotiations are set to resume on Friday.
The war has been particularly fierce in the besieged Azov Sea port of Mariupol, a gateway to the Black Sea which links a strategic corridor between Donbas and the Russian-annexed Crimea peninsula.
The mayor’s office estimates 5,000 people have died.
Tens of thousands have been trapped for weeks with scant food, water and other supplies in the city that once housed 400,000 people but has been pulverised by bombardment.
The International Committee of the Red Cross was sending an aid convoy and Ukraine dispatched 45 buses in hopes of evacuating people on Friday.
In a Russian-held part of Mariupol, people climbed out of cellars to appear, ghostlike, among the ruins.
Elsewhere, there was evidence of Ukraine’s successful counterattack in Trostyanets, an eastern town. Burned out Russian tanks and abandoned ammunition littered muddy roads.
What about Chernobyl?
Ukraine’s state nuclear company said all Russian forces that occupied the Chernobyl nuclear station had left the defunct plant, possibly concerned over radiation.
The UN nuclear watchdog, International Atomic Energy Agency, said it is preparing to send a mission to the radioactive waste facilities at Chernobyl in northern Ukraine. Though Russian soldiers seized control of Chernobyl soon after the invasion, the plant’s Ukrainian staff continued to oversee the safe storage of spent nuclear fuel and supervise the concrete-encased remains of the reactor that exploded in 1986, causing the world’s worst nuclear accident.
“According to the staff of the Chernobyl nuclear power plant, there are now no outsiders on site,” said state-owned Energoatom. The company had earlier said most troops had gone, leaving only a small number behind. – Reuters