Putin’s request to buy gas in rubles puts Europe in a difficult position and at risk of energy cuts, but Russia also suffers.
People in many European countries breathed a sigh of relief yesterday, when the gas flow from Russia to the continent was not cut off as the decree signed by President Vladimir Putin. The decree stipulates that if customers from countries Russia considers “unfriendly” do not pay in rubles from April 1, they will no longer be able to supply gas.
European countries, notably Germany, have resolutely refused this request, making the energy confrontation with Russia even more intense. The scenario of having to pay the contract in rubles instead of US dollars or euros will push Europe into a more difficult situation, in the context that the continent is having a headache to solve the problem of skyrocketing gas prices because of the war in Ukraine and other countries. international sanctions against Russia.
The liquefied gas tanker Nikolay Urvantsev at the port of Boilbao, Spain on March 10. Photo: Reuters.
Europe is not yet out of danger of being cut off from Russian gas. Kremlin spokesman Dmitry Peskov explained yesterday that the country continues to supply gas to Europe according to signed contracts. Requests for payments in rubles will be “made in the second half of April or early May”, Peskov said.
Europe imports most of its gas from Russia for heating, electricity generation and raw materials and fuel for a number of important industries. This supply is so important that the European Union (EU) refused to impose an immediate ban on Russian energy, due to fears of too great a impact on the economy and the risk of collapse of production and supply chains. .
About 60% of Europe’s gas imports are paid for in euros. With the plan announced by Moscow, foreign partners need to buy rubles to pay for the contract with the supplier, the Russian state corporation Gazprom.
In the scenario where the EU still firmly maintains its position and Russia implements President Putin’s decree at the end of April, Europe risks losing more than a third of its gas supply.
Germany, which is most dependent on Russian gas, has activated an emergency response plan. Europe’s largest economy may have to use gas more sparingly for the national service system and national industrial infrastructure in the near future, including the scenario of quota-based distribution for each household. family and the priority of the production facility.
Christian Kullmann, head of the German Chemical Industry Association, warned that if chemical plants were to shut down due to a lack of gas, they would not be able to resume production for the next several months. This, Kullmann says, will “cause a huge domino effect with much of the industry”.
Chairman of the German chemical workers association IG BCE Michael Vassiliadi called the chemical industry “the mother of many German industries” and said that the scenario of German chemical plants cutting off gas would make the industrial production chain in Germany worse. Europe collapsed rapidly, with global consequences.
Analysts from Brussels-based consultancy Bruegel say that if Russia cuts off gas in May, European countries can still cope, as warming weather limits heating demand. Imported liquefied petroleum gas (LNG) combined with restrictions on gas-consuming industries will help them get through tough times.
“But if Russia’s decision to stop supplying supplies lasts until next winter, Europe will have a much harder time,” the consultancy said.
Even countries that are less dependent on Russian gas such as the UK, Spain or Portugal thanks to their own production or imported LNG from other regions, they will also face fiercer competition, when countries in the region have high demand for gas. That could cause prices to skyrocket, leading to more severe inflation.
Russia believes that to avoid this bad scenario, the EU must pay the contract in rubles. But even accepting that request, the EU will also face many difficulties when implementing the contract.
A number of Russian banks have been blocked from doing business with the US and the West due to a series of sanctions over the past month, or have been excluded from the SWIFT system that supports international payments, causing Europe’s payment options to be significantly narrowed. .
“When paying for Russian gas in rubles, a currency that is depreciating in value, foreign importers will benefit more. However, buying rubles and paying banks is not subject to Western sanctions. very difficult,” said Eswar Prasad, a professor of trade policy at Cornell University, USA.
Prasad believes that if Europe pays in rubles, Russia will partially bypass the Western sanctions net of financial sanctions. The ruble price could rise further and the Russian economy protected. But if Europe refuses, Russia will lose an important source of revenue from gas exports.
The Center for Oriental Studies in Warsaw, Poland, believes that Moscow is trying to shift foreign currency flows from Gazprom to a state-managed banking system. In this way, the Russian government will better control foreign currency, which is increasingly scarce as the West has frozen many Russian assets and reserves abroad.
President Vladimir Putin during a meeting with the Russian Security Council on March 3. Photo: AFP.
However, this is a double-edged sword. Gazprom will be left without hard currency to pay foreign debts or buy equipment for gas production by itself. Over the past month, Gazprom has also sold 80% of its foreign currency reserves to the Central Bank of Russia, as part of Moscow’s emergency response measures following Western sanctions.
German officials confirmed that they will continue to enforce the regulation of payments in US dollars and euros according to the contracts signed with Russia. German Deputy Chancellor Robert Habeck stressed that “all G7 ministers are in complete agreement” that Russia’s decision is “one-sided and in violation of the existing contract”.
Carl Weinberg, an economist in New York, said that President Putin does not have many options in the gas battle with Europe when Germany and other countries refuse to pay in rubles.
According to Weinberg, Russia’s only option to pressure Europe is to refuse to supply products, but this is unlikely. Russia can’t quickly redirect pipelines to other customers nor close a field, so if gas to Europe is blocked, Russia’s storage capacity will quickly be overwhelmed.
“So I think this is just a blow from Russia,” Weiberg said. “Russia can’t stop gas deliveries, just like Germany and the EU can’t stop buying.”
Trung Nhan (According to RT, AP, Reuters, Guardian)
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