Energy suppliers raise concerns over Putin’s push for rouble payments
Energy companies have reacted with alarm and bafflement to the Kremlin’s demand for gas contracts to be paid in roubles.
Yesterday, Russian President Vladimir Putin said “unfriendly countries” must pay for energy supplies in roubles, in a retaliatory measure to Western sanctions.
Following the country’s invasion of Ukraine – the West has imposed heavy restrictions on Russian financial institutions and its central bank.
The UK and US have since ramped up the pressure, imposing restrictions on Russian oil imports.
This has led the Russian government to respond with its own measures in an attempt to rescue the rouble’s valuation.
The push for roubles saw gas prices spike 30 per cent across UK and European benchmarks yesterday, with investors questioning whether Russia would be able maintain its commitment to serving global markets.
This has caused fears to grow over potential supply shortages this year.
Commenting on the market reaction, Commerzbank analyst Barbara Lambrecht said: “Payments in roubles will require contracts to be renegotiated, and the prospect of ending up with less favourable conditions as a result of the forced conversion into roubles of the long-term gas contracts is driving prices up.”
Viability of currency switch called in to question
Following the announcement from Putin, BDEW has urged the German government to set up an early warning system to tackle potential gas shortages.
BDEW represents nearly 2,000 supply operators, while the country currently relies on Russia for over 50 per cent of its natural gas supplies.
Its president, Kerstin Andreae, said: “There are concrete and serious indications that the gas supply situation is about to deteriorate.”
However, German economy minister Robert Habeck believed there was no need for an early warning mechanism and that supply was guaranteed – even if the situation needed to be monitored.
There are also questions over the viability of the proposals.
For instance, Polish energy group PGNiG has a contract with Gazprom until the end of this year and its chief executive, Pawel Majewski, revealed it could not simply switch to paying in roubles.
He said: “Our contract partner can’t freely change the payment method stipulated in the contract.”
Meanwhile Tokyo Gas and Osaka Gas – the Japan’s two biggest local gas suppliers – have announced they are studying details on the rouble requirement
Japan is the biggest importer of Russian LNG in Asia, bringing in 6.84m tonnes of LNG from Russia in 2021, according to Refinitiv trade flow data.
However, the country’s authorities remain unsure how the rouble switch will work.
Speaking in parliament today, Finance Minister Shunichi Suzuki said:”Currently, we’re looking into the situation with relevant ministries as we don’t quite understand what Russia’s intention is and how they would do this.”