– by Andreas Rinke and Crispian and Balmer
BERLIN/ROME (Reuters) – Despite Russian demands, G7 countries Germany, France, Britain and Italy insist that bills for Russian gas continue to be paid in euros.
On Thursday, Chancellor Olaf Scholz reacted calmly to the announcement by Russian President Vladimir Putin that foreign companies would have to pay for gas deliveries in rubles from Friday. In Berlin he referred to the existing contracts. “In any case, it is true for companies that they want, can and will pay in euros,” he emphasized.
Russia had announced the ruble payment days ago, but the G7 countries had rejected it. Putin said on Thursday that he had a corresponding decree[nL5N2VY6G9] signed. To get the gas, foreign customers would have to open ruble accounts with Russian banks. “If such payments are not made, we consider this as a default by the buyers with all the consequences that ensue,” said the President. “Nobody sells us anything for free, and we won’t do any charity either, which means existing contracts will be stopped.”
The Chancellor, on the other hand, referred to the existing agreements, as did Italy’s Prime Minister Mario Draghi and France’s Finance Minister Bruno Le Maire. “It says… that payment is made in euros, sometimes in dollars,” said Scholz. “I made it clear in the conversation with the Russian President that this will remain the case.” We will now see how Russia will implement this. British Prime Minister Boris Johnson made a similar statement.
“Contracts in euros must be paid for in euros,” stressed Le Maire. Germany’s finance minister, Christian Lindner, said they would now examine exactly what the Kremlin intends to do. “We are well prepared for everything that Putin decides,” said Economics Minister Robert Habeck. Because of a possible failure of Russian deliveries, he had already activated the early warning level of the gas emergency plan on Wednesday.
Support comes from energy-intensive industry. “We should continue to stick together on the issue of euro payments, but use the remaining time to think about how to deal with the gas needs of the industry,” said Christian Seyfert, chief executive officer of the Association of Industrial Energy and Power Industries (VIK). He also spoke out in favor of getting coal-fired power plants out of reserve now in order to conserve gas storage.
After talks with Scholz, Austria’s Chancellor Karl Nehammer rejected demands that the EU should stop gas and oil imports from Russia. Russian gas cannot be replaced tomorrow or the day after, he said. When imposing sanctions, you have to be careful not to harm yourself. At present, the degree of dependence on Russian gas in countries such as Austria, Germany, the Czech Republic, Hungary and Slovakia is still too high. Scholz said that dependence on Russian oil and Russian coal could be ended this year.
KREMLIN CREATES CONFUSION
The Russian government had already caused confusion on Wednesday. According to the Russian agency TASS, after a phone call between Scholz and Putin, the Kremlin announced that Scholz had inquired about the possibility of ruble payments. As a result, government spokesman Steffen Hebestreit emphasized that Putin had, on the contrary, assured Scholz “that nothing would change for European contractual partners”. Payments would continue to be made exclusively in euros and, as usual, transferred to the Gaprom bank. On Thursday, Italy’s Prime Minister Draghi said that Putin had promised him exactly that. European firms would continue to pay for deliveries in euros and dollars. “What I understood, but I can also be wrong, is that the conversion of pay (…) is an internal matter of the Russian Federation,” Draghi added.
“The Kremlin may be acting out of fears that Gazprom Bank will soon also face sanctions amid a broader European Union push to completely sever energy ties with Russia,” said an analyst at Fitch Solutions. Russia would have to physically stop gas supplies to EU countries to enforce its claim, which would be a major escalation that didn’t even happen at the height of the Cold War.
The change in gas supply contracts announced by Russia made investors nervous. The Dax[GDAXI] and EuroStoxx50[STOXX50E] increased their losses. The European natural gas future[TRNLTTFMc1] on the other hand, becomes significantly more expensive.