Germany backed into a corner by Putins trick – value of ruble spiked after announcement

Ukraine: 'Nothing will stop Putin' says Volkivskyi

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The move announced on Wednesday sent European gas prices soaring over concerns it would worsen the continent’s energy crunch. Data from the Independent Commodity Intelligence Services shows that in December last year Russian pipeline gas accounted for 32 percent of Germany’s supply.

Russian gas accounts for some 40 percent of Europe’s total consumption with EU gas imports from Russia fluctuating between £167million to £668million (€200million to €800million) a day so far this year.

Putin’s shock announcement prompted some to raise the question whether Germany is now transferring 21,303,000,000 rubles (£157million) a day to the Russian president.

Commentator, Martin Knobbe, writing for German daily Der Spiegel, said: “The 200million euros Germany transfers every day to Vladimir Putin’s state-owned companies, it was argued, could not be used directly to finance his war. After all, the apparatus and the soldiers are paid in roubles and not in foreign currency.

“Now, however, the Russian president has decided to accept only the domestic currency for energy transactions with ‘unfriendly states’, which include the entire EU.

“The announcement alone had an effect: the value of the weakening ruble rose, as did the price of natural gas – by 30 percent at its peak. The long-term effects could be even more serious.”

He explained that importing countries could be forced to exchange euros or dollars at Russia’s central bank in order to obtain the necessary rubles for payments.

Mr Knobbe warned, however, that the central bank has been largely shut down by Western sanctions, meaning the West would have to soften one of its most effective punitive measures.

He said: “I… cannot imagine Putin would transfer back his daily pocket money from Germany if it were to continue to reach him in euros.”

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In his announcement, Putin, speaking at a televised meeting with government ministers, said: “Russia will continue, of course, to supply natural gas in accordance with volumes and prices … fixed in previously concluded contracts.”

“The changes will only affect the currency of payment, which will be changed to Russian rubles.”

German Chancellor Olaf Scholz said on Thursday that the currency which his country had to pay for energy is fixed by contract.

Mr Scholz, in a speech to the German parliament on Wednesday, said Europe will end its energy dependence on Russia but to do so from one day to the next would plunge it into a recession, risking hundreds of thousands of jobs and entire industrial sectors.

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He said: “Sanctions should not hurt European states harder than the Russian leadership.”

The possibility that a change of currency could throw the gas trade into disarray sent some European wholesale gas prices up to 30 percent higher on Wednesday.

British and Dutch wholesale gas prices jumped by Wednesday’s close.

The Russian ruble briefly leapt to a three-week high past 95 against the dollar and, despite some gains, stayed well below 100 after the announcement.

The currency is down around 20 percent since Russia invaded Ukraine on February 24.

Vinicius Romano, senior analyst at consultancy Rystad Energy, said: “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.”

Putin said the government and central bank had one week to come up with a solution over how to move operations into the Russian currency and that gas giant Gazprom would be ordered to make corresponding changes to contracts.

However, with major banks reluctant to trade in Russian assets, some Russian gas buyers in the EU were not immediately able to say how they might pay for gas in the future.

According to Gazprom, 58 percent of its sales of natural gas to Europe and other countries as of January 27 were settled in euros while US dollars accounted for about 39 percent of gross sales and sterling around three percent.

The European Commission said it plans to cut EU dependency on Russian gas by two-thirds this year and end its reliance on Russian supplies before 2030.

But unlike the US and UK, EU states have not agreed to sanction Russia’s energy sector, given their dependency.

Germany’s Economy Minister, Robert Habeck, said on Wednesday he would discuss with European partners a possible answer to Moscow’s announcement.

Leon Izbicki, associate at consultancy Energy Aspects, said: “It is unclear how easy it would be for European clients to switch their payments to rubles given the scale of these purchases.”

“However, there are no sanctions in place that would prohibit payments of Russian gas in rubles.”

He added that Russia’s central bank could provide additional liquidity to foreign exchange markets that would enable European clients and banks to source the required amount of rubles on the market.

However, there are questions over whether Russia’s decision would breach contract rules agreed in euros.

Mr Habeck also said Putin’s demand was a breach of delivery contracts.

Russia’s list of “unfriendly” countries, corresponding with those that have imposed sanctions, include Britain, the United States, EU member states, Japan, Canada and Norway.

Additional reporting Monika Pallenberg

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